In the past few days, US 30-year mortgage rates have seen a sharp increase, reaching the highest level since September 2000 on Thursday. It comes as US 30-Year Treasury yields rose further this week. This situation is expected to have a significant effect on closed sales from August to October in a context where inventory remains limited. I expect existing home sales to reach a 13-year low in the coming months.
*This article was written by Christophe Barraud and was republished with consent.
According to Bankrate.com‘s data, US 30-Year fixed-rate mortgage reached 7.60% on Thursday, the highest rate since September 2000. This increase was driven by a spike in 30-Year Treasury yields, which serve as a reference for mortgage rates.
Several factors explained this move including the lack of international demand for 30-year Treasury bonds. According to SCMP, “China cut its holdings of US Treasuries in June to the lowest since May 2009, as worries over the security of its overseas assets persisted amid Washington’s de-risking endeavours.” In the meantime, Bloomberg also highlighted “Saudi Arabia’s stockpile of US Treasuries fell to the lowest level in more than six years, as the kingdom allocates more of its oil wealth to riskier assets.” Lastly, Japanese investors (the largest foreign holders of US Treasuries) asked for a higher premium in a context where JGBs yields also rose this week amid a tighter monetary policy.
In the meantime, Freddie Mac reported the 30-year fixed-rate mortgage averaged 7.09 percent as of Aug. 17, rising for the fourth straight week. A year ago at this time, the 30-year FRM averaged 5.13 percent. In the meantime, 15-year fixed-rate mortgage averaged 6.46 percent, up from last week when it averaged 6.34 percent. A year ago at this time, the 15-year FRM averaged 4.55 percent. However, it’s important to keep in mind that Freddie Mac’s weekly rate number is a lagging indicator. It’s a 5 day average through Wednesday.
Meanwhile, according to the Mortgage Bankers Association (MBA), for the week ending August 11, 2023, mortgage purchase applications decreased by 0.3% on a seasonally adjusted basis from the previous week (v -2.7% prior). The index dropped for a fifth straight week and was down 12.2% over the past seven weeks. It reached the lowest level since February and the second-lowest level since 1995 (when the US population was 70 million lower).
This situation is expected to have a significant effect on closed sales from August to October in a context where inventory remains limited. I expect existing home sales to reach a 13-year low in the coming months.
About the Author:
Christophe Barraud is Chief Economist and Strategist at Market Securities. He has been awarded by Bloomberg the title of Top Forecaster of the U.S. Economy (from 2012 to 2020 and in 2022), Eurozone Economy (from 2015 to 2019 and in 2022) and Chinese Economy (from 2017 to 2020). He also won the latest Forecaster of the Year contest organized by MarketWatch in 2020. Since 2021, he has been Adjunct Lecturer at ESCP in the MSc Finance, which has been ranked first worldwide in the 2023 Financial Times Masters in Finance ranking.