At the time I'm writing this, mortgage rates are 5.32%, up from the high fours a few weeks ago.
Mortgage Rates - It Could be as Bad as You Can Imagine
With respect to yesterday’s in the mortgage market — yes, it is as bad as you can imagine. No call can be made on the near-term, however, until we see where this settles out over the next week of so. If rates do stay in the mid 5%’s, the mortgage and housing market will encounter a sizable stumble. The following is not speculation. This is what happens when rates surge up in a short period of time — I lived this nightmare many times.
Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day. Jumbo GSE money — $417k - $729,750 — has been blown out completely with some lender’s at 8%. I have seen it all in the mortgage world — well, I thought I had.
A good friend in the center of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle…pretty obvious from the start but kind of scary to live through it … today felt like LTCM with respect to liquidity.”
The consequences of 5.5% rates are enormous. Because of capacity issues and the long time line to actually fund a loan in this market, very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone.
This raises a significant issue for bubbleheads: Prices are likely to keep falling for at least the rest of this year, but mortgage rates are likely to increase when the economy recovers. Rising mortgage rates will likely push real prices down further, but not enough to prevent monthly payments from rising significantly. The Fed's monetary policy also risks (but doesn't guarantee) significant inflation as the economy recovers.