People tour a home for sale during a broker open house in San Francisco, California. In the wake of several tech company IPOs, San Francisco is bracing for its already expensive real estate market to get even more expensive.
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The average rate on the 30-year fixed is now 20 basis points higher than it was on Monday and 36 basis points higher than its last low on September 4th, according to Mortgage News Daily.
That is the biggest short-term jump since the week following the election of President Trump.
That is the bad news for borrowers. The good news is that rates are still incredibly low, and in the weeks before this turnaround, rates had fallen to the lowest level in three years.
“These sorts of bad performances are most often seen in the wake of stellar performances,” said Matthew Graham, chief operating officer of Mortgage News Daily. “August was the best month for mortgage rates, and 2019 has been the best year since 2011. And that’s precisely why this terrible week is possible: It’s largely a technical correction to the feverish strength in August.”
Analysts now wonder if this a short-term correction from those recent lows or a new shift toward rising rates.
“The big risk here is that the overall rate rally—the one that began in November 2018—has run its course,” said Graham.
If the market “can match 2011’s performance, there’s a chance rates will move to new all-time lows by the end of the year,” he added. But that would require “some legitimate deterioration in the global growth outlook.”
Mortgage rates loosely follow the yield on the 10-year Treasury. While moves in the Federal Reserve’s rates can affect bond yields, mortgage rates are not necessarily tied to Fed rate cuts or increases.
While mortgage rates are still historically low, so many borrowers have already refinanced, that the pool of those left who could benefit is extremely rate sensitive.
When rates dipped to their recent low, the number of borrowers with good credit scores and at least 20% equity in their homes who could save on a refinanced surged to the largest on record, 11.7 million, according to Black Knight.
That has now dropped by about 2 million. [Black Knight defines refinance candidates as 30-year mortgage holders with a maximum 80% loan-to-value ratio and credit scores of 720 or higher, who could shave at least 0.75% off their current first lien rate by refinancing.]
Mortgage applications to refinance a home loan were actually flat last week, despite the low rates, according to the Mortgage Bankers Association.
That may have more to do with psychology than anything else. When borrowers see rates dropping fast, they hold off, thinking they may go even lower. As with every other market, you can’t time the mortgage market.