Having ticked up to 3.98 percent last week, the average rate for a 30-year mortgage had eased to 3.93 percent as of this morning but with an extra 0.1 points at origination (up from 0.7 to 0.8).
Over the past two days, however, the yield on the 10-year treasury has ticked up .24 percentage points and the yield on 30-year mortgage bonds has increased by .38 points, a reaction to Federal Reserve Chairman Ben Bernanke’s remarks concerning a tapering of the Fed’s Quantitative Easing program.
Last year at this time, the rate for a 30-year fixed mortgage averaged 3.66 percent. Since 1990, the rate for a 30-year fixed mortgage has averaged 6.75 percent, 8.67 percent since 1971.
Fixed Mortgage Rates Tick Up To Near Two-Year High [SocketSite]
Mortgage Rates Ease Slightly [Freddiemac]
What’s The Treasury Got To Do With It? (Quite A Bit) [SocketSite]

39 thoughts on “Uneasy Expectations For Higher Mortgage Rates”
  1. Once again, a “hot” market (i.e. enormous housing bubble) based in part on historically-low mortgage rates…gee, where have we seen this before, and what could the outcome possibly be?
    Amazing: we get TWO housing bubbles blown just a few years apart. Thank you, Ben; collect your check on the way out.
    Hot market? What happens when the speculators vanish and the banks ramp up the foreclosure massacre? You people are insane.

  2. 0.38 is 10% of the current rate, and when it happens in two days, that’s something worth noting. It’s the equivalent of GOOG dropping 90 points in two days.
    It’s not likely to continue at that rate, and interest rates are not as easy to measure as a single stock, but there’s definitely a high level of volatility over the last few weeks since Ben started talking about ending QE. Volatilty we are also seeing in the stock market.

  3. I think the banks have over reacted. I bet you that .38 eases down to .25 in the next two week. Rates are still extremely low.

  4. “This isn’t a crisis like the ones that struck the United States starting in 2008 or Europe in 2010. Rather, it is a byproduct of the world’s central banks, having intervened on vast scale to deal with the economic travails of the last several years, introducing uncertainty and even a little chaos as they start to contemplate how and when the era of easy money might end.” (Washington Post today)
    I’m surprised anyone is surprised this is finally starting to happen.
    “If the whole thing — the rises in stock prices, in corporate earnings, in the housing market, even in job growth — is driven solely by the flood of money, or whether five years of zero-interest rates and trillions of dollars in bond purchases have succeeded at getting a more resilient economic engine for the United States up and running.”

  5. In theory, this should give people pause at least to contemplate the mid and long-term macro risks and the fact that Bernanke doesn’t know how to unwind this mess (though he won’t be around to have to deal with it), but in the short-term, I think this will only add to the housing fervor. People will be told and believe that this is their last chance to get low rates in a one-way market so they should bid even more aggressively. Low rates generate fervor and oddly higher rates generate fervor at least for the next year or so depending on the path of rates.
    The stock market boom goes into a tech bubble in the late 90s which post-crash then gets transferred into a real estate boom from lower and lower rates. It’s ironic that people bedevil Greenspan for creating the bubble by lowering Fed Funds to a then-record 1% for about a year. What’s our solution to the terrible Greenspan’s policies? Set rates even lower (i.e. 0) for much longer and then start what is an admittedly (by bernanke) very experimental program of QE. It’s sort of like: “Doctor, this pill made me sick.” Dr: “One pill made you sick? Take the whole bottle.”
    Still under Greenspan, the then-historic low rate boom to save the economy shifted the real estate boom into bubble territory. When rates started higher, it was the beginning of the proliferation of unconventional mortgages which took r/e to the next level. So tech bubble to real estate bubble and now . . . to the government bubble. I’m not saying that this will end horribly necessarily, just that the truth is told in the long run.
    This coming year though I’d guess it puts a fire under people even more to lock in not quite as low rates as they will be told this is their last chance to get in . . .

  6. No one is out there saying this is their last chance. Any rate below 6% is a very good rate. And we will be below 6% for the foreseeable future. Valuation are not so out of alignment that would make anyone thing that there is a major bubble in the stock market either. Sure Zynga and Groupon have had their days of reckoning. But other than those two examples in the public tech space things seem fairly valued. Are we at the outer limits of price elasticity in regard to real estate? Probably. But that doesn’t mean we’re going to see 20-25% reductions of housing anytime soon. I’m not seeing the trigger at this point.
    Anyone that thinks the next person in line to follow Bernanke and Greenspan is going to change the course dramatically isn’t paying attention.

  7. I don’t think anyone has predicted 20-25% reductions from this point. But there is a massive difference in affordability between 3.5% rates and 6% rates (the latter is not a very good rate at all in a 1.5% inflation world). The price burst of the last year was a nationwide phenomenon driven by rates. SF went along with the broader trend.
    Through dumb luck, I locked in our 3.7% jumbo rate on the place we bought late last year, and that was with negative .5 points. Would now have to pay about 4.5%, resulting in almost 10% higher payments every month for 30 years. I wouldn’t have done it and I’m not sure I would have qualified in any event. Rising rates is a big deal and will put a damper on things. NB that taking the air out of this bubble is a good thing. And so were the ultra low rates of the last year as we needed to goose the economy and particularly the housing market, and it worked.

  8. Individuals might fall for the last chance to get in patter, but nationally there has been a lot of large investor buying and bank inventory hoarding. They’re going to want to be the first ones out the door, not the last. The market reaction is showing that it believes the recovery is Fed driven and not organic. The question is will Ben backtrack if the markets go too far south. Or since he’s a lame duck at this point will he use that immunity from political pressure to start the taper.

  9. Agreed with anon. This is a recovery, and housing is coming back nationwide, but it’s not entirely due to low rates:
    I think the current RE bull market comes mostly from a catch-up effect. Unemployment is coming down, people are optimistic about their future. During the 4 years of downturn, population has grown, many had to scale down, almost no housing supply has been built. People who still had good jobs in the downturn have rebuilt their finances stronger, reduced their debt levels even accumulated savings.
    Will higher rates affect prices? I hope so. We want to stop a new bubble from building up again. A healthy housing market should be the RESULT of a healthy economy, not the other way around.
    Now, I think Bernanke should be credited with saving the economy from what was a pretty disastrous situation. We’re doing pretty well. He sees that 2014 will probably better than 2013 across the board, which means the economy will not need the crutches of Real Estate/free money like it used to.
    It’s time to let the banking sector step up and put their clients’ money to work. 1% on 5-y CDs? WTF? I want 4% as it is supposed to be. Make it happen! 😉

  10. In my opinion Bernanke gets credit for completely failing to see the global economic collapse, and failing to properly deal with it afterwards, and to date. Aside from the great depression this is the worse recover from an economic downturn in American history.
    He’s not the only one who deserves the credit, but it’s pretty much the only thing he’s supposed to be doing…
    His buddies have made out like bandits, while the middle class is far worse off, with little end in site for the pains of the average american.

  11. lyqwyd, what more could the Fed have done that would really have made a material difference? It pushed as much money into the system as it could and has kept rates at zero.
    What was missing was a political solution — an adequate jobs/spending program from Congress (and the White House). That was where the govt fell short. The Fed probably could have done a tad bit more (e.g. more and earlier QE), but it came pretty close to using the tools it had to the max. Remember the repubs were calling for Bernanke’s head even for what he did (“debasing” the dollar! Weimar inflation!). Doing a great job but falling short of absolute perfection is hardly a complete failing.

  12. Bernanke’s main failure was to do anything in advance of the collapse, or even be aware the collapse was coming.
    Certainly our leadership shares much of the blame of the ineffectiveness of the efforts since then… and ultimately we all share the blame for continuing to elect these incompetents.
    I agree that something had to be done once the collapse was in progress, and I agree that what was done did not make things worse and did help in some regard, at least after the initial efforts that did in fact make things worse, like the disorderly collapse of Lehman. On the other things I think things could have been much better if they had taken other moves.
    But Bernanke’s continuing failure is to finance the incompetent activities going on today. It’s been years since QE was necessary. While there is some short term benefit, mostly for the wealthy, the long term harm will be much worse than the mild benefits we are getting today, and again the damage will fall squarely on the middle class.

  13. OK, I see your point. Yes, he plainly shares the blame for missing, and permitting, the nasty banking/housing bubble to form in the first place. Although he only took over at the Fed in 2006, a year or two too late to have done what needed to be done. Greenspan is the far bigger villain.

  14. Seeing what the Austerians have accomplished in Europe (try to bleed the patient into good health, and bring him into a deep coma intead), Bernanke did a darn good job. More could have been done. Krugman was right gain on this one. They should have doubled the stimulus and there would have been no noticeable increase in inflation.
    If you listen to Euro media, the world is in a deep crisis. But from the US prospective, we’re doing much much better than almost any other developed region despite the idiotic sequester of late.

  15. It pushed as much money into the system as it could and has kept rates at zero.
    Hilariously wrong. The Fed can create any amount of money that it desires. The idea that it “pushed as much money into the system as it could” is why we’re still sitting at unemployment over 7%. If the Fed was doing its job correctly, they would have pushed substantially more money into the system and gotten the job market back up to a decent level – with (OMG!!!) maybe 2.5% inflation instead of the constant 1.5 to -1.0 inflation that we’ve been shackled to over the last four years.
    It seems like the Fed does simply want to repeat every mistake made in the 30’s by under-utilizing monetary stimulus as much as possible.

  16. “Greenspan is the far bigger villain.”
    No doubt, but that doesn’t absolve Bernanke. It’s not as if he was fresh out of college when he got the job of chairman.

  17. anonymouse, what could the Fed have done to push more money into the system? And what good would it have done?
    Problem was (and to some extent, remains) that there was too little demand in the economy, and thus too few creditworthy borrowers for banks to to lend all that money to. Hence, they simply parked it for about 1/4% (i.e. deposits by depository institutions at the Fed). This is the so-called “pushing on a string.” The Fed’s pushing even more money out would have made no difference. We needed the politicians to make up for the slack demand with jobs and spending programs. We didn’t completely eff up on this like the europeans, but this is where the govt fell short, not at the Fed.

  18. I always laugh when people claim Krugman was right… all he said was that what was being done wouldn’t work, but a whole bunch of other people said the exact same thing… so I guess everybody was right… except Bernanke of course.
    Regarding Europe, I’ll just point out that the countries that have and had reasonably sensible fiscal and monetary policies are also the ones currently doing the best, a number of them quite better than the U.S.
    “Bernanke did a darn good job.”
    Unemployment rate in mid 7%, still worse than the worst rate of many past recessions. Underemployment is around 18%, also terrible. Labor force participation rate has been lower (worse) every year since the recession started. Income inequality continues to worsen, the jobs we are getting back are worse than the ones that were lost. Not a good job in my book.
    Things are certainly better than at the worst of the recession, but that’s not saying much, and certainly not good enough to say that anybody has done a good job. Especially when you acknowledge that the middle class has seen very little, if any on average, of the improvement.

  19. @anon – read Scott Sumner for the best explanation of NGDP targeting (rather than the rather crude interest rate targeting):
    Pushing on a string is nonsense, proven by the last nine months of QE, especially the five months where monetary policy completely counteracted the effects of negative fiscal stimulus due to the sequester.
    Short story? The Fed has been buying $85 billion a month in debt. It could very easily have pushed more money into the system by buying more than $85 billion. If you that would have had no effect, I’ve got an island to sell you…

  20. I agree (as I stated above) the Fed could have done more QE and done it earlier. But this is not without its own risks (see recent emerging housing bubble). Buying $100 or $200 billion a month in debt would not have been a panacea. Far more effective move would have been direct jobs and spending bills to get all the idle money moving through the economy. The Fed is not the king. It does not have the authority to do everything that would work best, and it can’t take the blame for others’ failures. It did a fine (but far from perfect) job given its relatively limited set of tools.

  21. Yes, the typical Keynesian idea of more and more government spending, which is somehow seen as more politically possible than allowing the politically independent Fed to create more money – which it already has the power to do without going to anyone else. I’m confused.
    Monetary stimulus is superior in every way to fiscal stimulus, which is why Japan has seen the best growth in decades over the last nine months (their first try at actual monetary stimulus, and yes, from the zero bound! Yet no “pushing on a string” problem! Hmmm…) – after 20 years of failed fiscal stimulus driving debt-to-GDP ratios over 200%.

  22. lyqwyd,
    The $700B+ stimulus worked, and Krugman repeatedly asked for double that. Now we have a recovery in the 2-3% range instead of the 4-5% that we’ve had after all the recessions. It’s slower and more tepid that we’d all like to, and for who to blame look no further than the president’s lack of courage plus solid obstruction from congress. The only other way to help the recovery was cheap money through the Fed’s 85B/month purchases.
    Unemployment is dropping month after month. Inflation is still in check. Not everything is perfect, but we’ve backed away from the cliff and everyone’s feeling much better than 4 years ago. Except for a few seriously depressed bears stuck in 2009 end-of-the-world fantasy, that is…

  23. yes, Krugman asked for double and didn’t get it… so he was right how?
    What he asked for didn’t happen, so there can be no conclusion about whether he was right or wrong, since there is nothing to base judgment on.
    You certainly can’t say spending double would have been twice as good. If that made any sense then quadruple would have been four times as good, and 100 times more money would have been 100 times as good, in which case Krugman would be a fool for merely suggesting twice as much.
    Unemployment rate is the worst measure as it’s easily manipulated, most notably if somebody stops looking for work they are no longer counted. So the number can get better, while the reality can get worse. Labor participation is a far better metric.
    “everyone’s feeling much better than 4 years ago”
    Nope. As I pointed out the middle class is worse off than 4 years ago, and getting worse.
    20% of Americans are on food stamps, a record high and growing.

  24. From my link above in the huffington post regarding the middle class, which cites source as CBS News / JAMA Pediatrics

  25. Japan (post-1990) and the U.S. (post-2008) were similar but differed in important ways. Japan never had high unemployment but did face deflation. Thus, monetary stimulus seems to be the right medicine. They need more yen flowing, but they do not really need to create demand to make up the slack from high unemployment. The U.S. did (and does) have high unemployment, and the key to getting the economy growing is getting those people back to work. Fiscal stimulus is the best tool for that. The U.S. also needed (and needs) monetary stimulus to inject dollars and ward off deflation, but that would not be sufficient, or at least it would not be the best and most efficient tool. The Fed used it well to make up some of the slack cause by Congress’ failure to act sufficiently, but it could never solve the problem by itself.
    Congress spending double would have been twice as good — or more — in this case. Sure, you get to a point where you have full employment and more spending will no longer have a net benefit, but we never got close to that point.

  26. lyqwyd,
    Simply compare the US with Europe to see how the stimulus changed the game. If you are not comfortable with comparing with Europe because of their quite large social protection or their use of the Euro, simply pick the UK where much of the social system has already been gutted, privatized and digested. They have played the card of austerity all the way and have absolutely no growth to show for it.
    And about the middle class, the recent RE gains and access to credit are doing wonders. Plus people rushing to purchase property (middle class and upper class, the sub-prime are still out) show their faith in the future.

  27. @lol
    Here’s a European comparison for you: Spain’s unemployment rate at the height of the boom was worse than the U.S. unemployment rate today. And in the last 20 years the aggregate Euro area unemployment rate has not dropped below 7%, and has averaged around 9%. The important takeaway is that countries are different, and one country or region, even at the best of times, may be worse than another at the worst. Saying the Euro area is doing worse than the US is like saying water is wet. It may be true, but it’s a meaningless statement.
    Saying europe is worse off than us is not the same as saying the U.S. is doing well, it’s a classic straw man argument.
    It’s much more interesting to compare the U.S. today to the U.S. before the recession, or 10, 20 or 100 years ago.
    I don’t really care about what is the right method, austerity, fiscal stimulus monetary stimulus, a combination of all, or some other approach entirely. I’m only concerned with results, which are abysmal to date, given that the recover is the worst on record, and the middle class is worse off today, and getting worse.
    I care about results, not politics or economic theories.
    I find it insane that people consider the recent crazy real estate gains as a good thing given what happened just 5 years ago. RE was a huge boon to the middle class then, and then all the gains and more were lost in less than a year. How soon we forget. Not to mention that a lot of middle class people rent.
    As I’ve mentioned several times above, the middle class continues to be far worse off today than they were 5 years ago, and things are getting worse. Feel free to read the links I provided above, which make this quite clear.
    I stand by my data, and have little interest in an unsubstantiated claim that short term real estate gains have any meaningful benefit, or even any benefit at all, to the middle class.

  28. Wow, hold your horses Mr Doom. We’re not even past the middle of this recovery. Remember 1992-1994? Plenty of whining at time too, about the “jobless recovery”. 1994 was the start of my first wave of RE buying.
    It’s a cycle. Always has been, always will be. Hint: people who see the cycles and takes risks will fare better than others. The rest will blame the rich, Obama, the Fed, etc…
    Fun (in a way) fact: a friend of mine was – rightfully – bearish during the 2007-2010 downturn. In 2010 I told him the crisis had run its course and he should buy. He had the second kid on the way and his rental was becoming a bit cramped. His excuse was that everything was still way too expensive, that things would get worse. That was his rationale.
    Well, guess what? He hasn’t bought yet and wifey is mad as hell.
    It’s not like he doesn’t have a great job. He’s moving up because he’s good at what he’s doing. His situation is improving. I think it’s chemical. Some people are just like that, no matter how smart they are. Even tipster has gotten the message things were looking up. He’s crawled under a rock waiting for the next recession to tell everyone he told us so, lol.

  29. Sure it’s a cycle, but it doesn’t have to be nearly as severe as it is, and the Fed’s initial justification for being created was to reduce the severity of the business cycle, but they have failed in that, and some would argue the business cycle has gotten more extreme since it’s inception.
    I consider myself a realist, not a pessimist. I don’t consider stating the facts to be pessimistic, and the growing economic inequality is quite well documented. When I was driving home yesterday one of the guys on NPR mentioned that it is as bad as it’s been in the last 100 years.
    I’m bullish when the numbers support it, and bearish when they don’t.
    Everything I’m seeing about this recovery indicates it has little benefit to the middle class, and is statistically one of the worst recoveries on record, so claims that Bernanke has done a good job are very difficult for me to understand. Overseeing one of the worst recovery on record, where the majority of the benefit has bypassed the middle class just doesn’t seem like a good job to me.
    And given that it sounds like he’s about to quit, he won’t even have ridden out the full business cycle to it’s culmination, somebody else will be left the difficult task of trying to finish the recovery.
    I think this is one of those topics we will continue to disagree on for some time.

  30. Yeah you ll hear tons of people who say things are bad. There s a cottage industry of economists who want to sell their negative insight (bull markets are boring and mostly uneventful, and they sure sell less books). Some want to sell you gold for the safety value.
    A few questions:
    – is everyone employed around you?
    – are people you know postponing live plans because of the economy?
    And “worst in the past 100 years?” Give me a break. My grand grand father, grand father and father would all laugh at that if they were still around. They all went through wars and deeper crisis. We live in the best of times. Hey the middle class has to fight. Shocker.
    There are pills for that.

  31. You apparently don’t understand the difference between a balance sheet recession and a normal recession, which is driven by a cyclical deficit in demand. The Fed has done an amazing job keeping this downturn from turning into the Great Depression II, which it assuredly would have become without their intervention.
    Could they have done some things better? Perhaps. It is always easy to sling arrows from the sideline than actually do the hard work in the trenches. Bernanke only has so many tools at his disposal.
    I read your links lyqwyd and all I see is that most Americans are stupid, selfish and short-sighted. 77% live paycheck to paycheck? 28% don’t have a penny saved for emergencies? How about getting rid of cable, turning off your iPhone, selling the car and living within ones means? Ben can’t do anything about financial illiteracy.
    The Middle Class has seen its incomes stagnate for a very long time, which your own source recognizes. I don’t think that this is a bad thing, I think that this is a good thing. Americans consume too much of the worlds resources as it is, we do not need to consume any more. Americans are well fed, live in large, luxurious houses, drive fancy new cars and have access to educational and employment opportunities that most of the world is envious of.
    As I have said before, I think that the Northern European model of a mixed economy is a better one than the one we have here. The proof is in the pudding: outcomes across the contient from Finland to The Netherlands are superior to ours. But try and convince the average American voter to vote in his own best-interest is beyond me. They call nationalize medicine “socialist.”
    But I think most of the change in wealth distribution in the United States is due to technology. Things like The Internet and computer technology magnify the ability and talens of those best able to make use of them. The rest are left behind. I don’t think there is any easy answer here, but I am curious what you think.

  32. Bernanke only has so many tools at his disposal.
    True, but until this past year he hasn’t use the EXACT TOOLS that he continually lectured the Japanese to use through the academic papers that he published throughout the 90s.

  33. @lol
    Wars and crises have no bearing on economic equality in any given country. The numbers don’t lie, economic equality is way down in the U.S.
    You ask if my friends and acquiantances are doing well, but that’s irrelevant as that is not an economic indicator. Especially given that we are all in SF, which is doing quite well. Go to Detroit, Flint MI, or even most parts of the central valley and see what people have to say. I suspect you’ll get a different answer than if you just ask your friends.
    I’ve already pointed out a number of national data points supporting my argument.
    Yes there are pills, powders, liquids, etc. that can get one to ignore reality, there are even glasses of a rose tint that can do the job as well. I prefer reality so I’ll pass.

  34. @NVJ
    As I’ve mentioned above, Bernanke has done a great job propping up banks and funneling money to the rich. He hasn’t done much of benefit for the middle class, as evidenced by the information I’ve provided in my earlier posts.
    “all I see is that most Americans are stupid, selfish and short-sighted.”
    “The Middle Class has seen its incomes stagnate for a very long time, which your own source recognizes. I don’t think that this is a bad thing, I think that this is a good thing.”
    Well, I guess you are entitled to your opinion, I strongly disagree with those statements.
    “I think that the Northern European model of a mixed economy is a better one than the one we have here.”
    Personally I don’t care about the mode of government, I’m concerned with opportunity and equality. There’s certainly lots of effective policies that we could adopt from northern Europe.
    “But I think most of the change in wealth distribution in the United States is due to technology.”
    The history of technological development correlates very strongly with increased equality, both economically and socially. You can see it throughout history, as well as the modern world where the more technologically advanced countries also tend to have the highest levels of equality. So again, I strongly disagree.

  35. Thread is interesting but has gotten off-track a bit. Relevant point is that mortgage rates are still rising fast (regardless of who you blame/credit). Has really been a massive change.
    Case Shiller numbers come out tomorrow. Will show massive price increases. But that is because the numbers are a few months behind. As I stated above, I got a jumbo loan from Wells Fargo 4 months ago at 3.7% and negative .5 points. Today, Wells is quoting 4.625% and 1 point for the same loan. Payments would now be more than 10% higher, about $550 more every month for 30 years (or until I sell). Huge difference. This will be reflected in the CS numbers in a few more months. Homebuilder stocks are down about 20% in the last couple weeks solely because of the rate moves as generally the news on home sales has been very good. The party went into overdrive because of the absurdly low rates, and the music has been turned way down as that trend reversed. This is a very big story for home sales, in SF as everywhere else.

  36. anon,
    I agree this is likely a game changing move. 4% was manageable, but if we get past 5% the bull party will be over for the segments that rely on borrowed money. The other segments will follow suit. Everything is connected, even loosely.
    This possible change in narrative reminds me of late 2011 and how the market ended up running out of inventory after a slow and steady churn, then became the runaway bull market that we’ve seen for 18 months.
    Resale/flip expectations are still very high, but I think sellers will have to face reality in the next 18 months.

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