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Time To Buy! Mortgage Rates Surging To Highest Level In 7 Years (Lock 5% Today Before 6% Arrives Next Year!)

Mortgage rates are edging noticeably higher this week, and would-be home buyers and refinancing homeowners may have missed out on a chance to lock in a lower rate. 

  • The average contract rate on the 30-year fixed will likely end the day as high as 4.875 percent for the highest creditworthy borrowers and 5 percent for the average borrower.
  • Tuesday's move follows positive economic data in retail sales, suggesting that newly imposed tariffs would not hit sales as hard as expected.
  • With supply and demand so far out of whack, Mortgage Rates are unlikely to affect home prices in the near term.

Mortgage application volume for refinancing and home purchases dropped 2.7 percent last week on a seasonally adjusted week-to-week basis, the Mortgage Bankers Association reported Wednesday. Mortgage application volume is 4.5 percent lower than the same week a year ago. 

Applications for refinancing posted the biggest drop last week. Volume plunged 4 percent to the lowest level since August 2008. Refinancing applications tend to be more rate sensitive than applications for home purchases. Refinancing applications are nearly 17 percent lower than a year ago when interest rates were much lower. 

Mortgage applications to buy a home dropped 2 percent last week, but volume remains 4 percent higher than a year ago. 

In a Bidding War; A Local Mortgage Lender May Offer an Advantage

The 30-year fixed-rate mortgage dropped to 4.77 percent last week, the MBA reports. But on Tuesday, interest rates jumped to a seven-year high, following a major sell-off in the bond market, CNBC reports. The average 30-year fixed-rate averaged 4.875 percent for the highest creditworthy borrowers and 5 percent for the average borrower, according to Mortgage News Daily. 

More buyers are turning to adjustable-rate mortgages, which offer lower introductory rates for a set period before rising. But ARMs are on the rise too. “Jumbo and 5/1 ARM rates increased, with the 5/1 ARM rate increasing to its highest in our survey at 4.09 percent,” says Joel Kan, an MBA economist.

Mortgage rates, which loosely follow the yield on the 10-year Treasury, started the year right around 4 percent but began rising almost immediately. They then leveled off in March and early April, only to begin rising yet again. Tuesday's move follows positive economic data in retail sales, suggesting that newly imposed tariffs would not hit sales as hard as expected.

 

Rates have been widely expected to rise, as the Federal Reserve increases its lending rate and pulls back its investments in mortgage-backed bonds. But mortgage rates have reacted only in fits and starts.

"The bottom line is that the writing on the wall has been telling rates to go higher since at least last September," said Matthew Graham, chief operating officer of Mortgage News Daily. "Rates keep looking back to see if the writing has changed, and although there have been opportunities for hope (trade wars, stock selling-sprees, spotty data at times), it hasn't. Today is just the latest reiteration of that writing."

Higher mortgage rates often chill prices, as sellers have to adjust to what buyers can afford, but with supply and demand so far out of whack, that is unlikely to happen in the near term. If rates move significantly higher, past 5 percent on the 30-year fixed, prices will have to adjust.

If mortgage rates reach 6 percent next year, near the upper end of forecasters' expectations, the share of income needed to cover monthly housing costs on the median U.S. home will be 20.5 percent, nearly the historic norm of 21 percent. But in several large U.S. markets, including Seattle and San Diego, mortgage payments already take up a larger share of income than they did historically.

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