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  • Jonathan Poyer

Was The Latest Mortgage Rate Increase the Big One? Well......

Updated: May 3, 2022

I liked this article from Mortgage Daily News and have been thinking about it quite a bit.

The two charts below are fascinating and are a cause for some perspective.

However, before we go into that:

The average 30-year mortgage rate has been rising and rising quickly As of 4/21, the average rate for a 30-year fixed rate mortgage is 5.11% after starting the year at 3.22%; a nearly 60% increase:

We know that Fed moves do not directly impact the mortgage rates per say, but they are correlated and tend to move in tandem. This move to start the year has been a historic rise. It is especially worth considering and following as we hear the Fed discuss a continued increase in rates including 50bps – 75bps increases in the short-term. In fact, Bullard stated having a goal to get rates up to 3.5-3.75%!!!! The potential impact on mortgage rates for that move could be significant; not to mention the potential impact on purchasing power and the economy in general. Whether that will actually happen is a topic for another day but statements like this are now on the record.

Here are the graphs from the article that stood out to me:

The largest move in rates since 1994; just a massive bump. Granted, the increase is coming from historic lows, but still a fast and drastic rise.

BUT..if you go back to the mid-1970s, you can see that the present situation pales to the extremes that we have seen in the past.

When things move this quickly and this drastically, it makes it difficult to pin down what “market rates” really are or how to forecast them. Surely, coupled with the Fed reducing its MBS purchasing and “tightening” its balance sheet, the impact on housing could be pronounced. Where rates will end up remains to be seen. I presume they will continue to go up and if Bullard is correct, and not just jaw-boning, it does seem that 6%-7% 30-year mortgage rates are in play.

The supply and demand characteristics of the market are just so stark. Maybe home price appreciation with slow, but it seems like it will continue to grow.

Keep your eyes on these rates! CPI above 8.5% and mortgage rates pushing into 6-7% could really impact the macro economy as purchasing power drops.

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