The average rate for a conforming 30-year mortgage rocketed 55 basis points (0.55 percentage points) over the past week to 5.78 percent which is the highest average rate since November of 2008. As such, the current 30-year rate is now 97 percent higher than at the same time last year with the average rate for a 5-year adjustable rate mortgage (ARM) having jumped to 4.33 percent, which is over 70 percent higher than at the same time last year and 63 percent higher than the average 30-year rate in January of last year.
With the rise in rates, mortgage application volume in the U.S. has dropped to a 22-year low, with purchase volume down over 20 percent, year-over-year. Or as we outlined six months ago, when the average 30-year rate was closer to 3 percent, the projected rate hikes, which have since materialized, would translate into “higher mortgage rates, less purchasing power for buyers and downward pressure on home values.”
Keep in mind that the 5.50 percent rate was measured prior to yesterday’s rate hike but that the three-quarter point hike appears to have been proactively priced-in, based on movements in the 10-year treasury. That being said, the probability of the Federal Reserve raising interest rates by another two (2) full percentage points by the end of the year, based on an analysis of the futures market, is currently running around 80 percent, “which should translate into even higher mortgage rates, less purchasing power for buyers and downward pressure on home values.” We’ll keep you posted and plugged-in.