Mortgage Rates are Climbing . . . What Now?

Mortgage Rates are Climbing . . . What Now?

rates-riseMortgage interest rates rose for the fifth week in a row and are at their highest level in more than a year, according to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) released on Thursday.

The average 30-year FRM climbed by another 5 basis points up to 4.08 percent for the week ending November 30, 2016, and is 15 basis points higher than the same week a year ago. The average 30-year FRM has risen by 51 basis points in the three weeks since the election and is at its highest point since the week of July 16, 2015, when it was 4.08 percent, according to Reuters. The average 15-year FRM jumped by nine basis points from the previous week, up to 3.34 percent, which is 18 basis points higher over-the-year.

“With mortgage rates at the highest we’ve seen this year, borrowers are now backpedaling on refinance opportunities,” Freddie Mac Chief Economist Sean Becketti said. “The latest Weekly Applications Survey results from the Mortgage Bankers Association show refinance activity down 16 percent week over week.”

What’s next for lenders in the higher mortgage rate environment, after rates hovered near record lows for most of the year?

“Mortgage rates have spiked more than 50 basis points since Trump’s election, rising to the highest levels we’ve seen this year as investors assess the degree of political and economic uncertainty that Trump’s presidential win introduced to the market,” said Erin Lantz, vice president of mortgages for Zillow Group. “As investors move away from U.S government assets, including US mortgage-backed securities, in favor of relatively safer investments, we expect more volatility as markets try to put a price on the political developments. Consumers considering buying or refinancing now should stay patient, as we’ll likely see rates stabilize once markets find a new equilibrium.”

Holden Lewis, Senior Mortgage Analyst with Bankrate.com, said the higher interest rates may prompt lenders to count on referrals for new purchase loans as opposed to established business for refinances.

“You’re going to see fewer refinances,” Lewis said. “For lenders, a big part of it is going to be concentrating more on purchase loans. I would assume that loan officers are going to have to concentrate more on developing relationships with realtors. It’s not going to be a refinance relationship, which is sort of a one-on-one relationship with a borrower, like maybe you did a loan with them two years ago and then you contact them and say, ‘Hey, have you thought about refinancing?’ Now, I think it’s more about finding a way to get a hold of those homebuyers and probably a lot of that is through referrals from realtors.”

Keith Gumbinger, VP at HSH.com, said the velocity of rates has slowed in the last two weeks after a big bump in the week following the election indicates that the correction in rates may be ending—and that rates are still relatively near historic lows.

“the immediate impact is that refinance activity (which had already been petering out) will pretty much come to a standstill (excepting relatively small audiences comprised of those with old ‘high’ rate mortgages who are only now becoming aligned with today’s underwriting standards (credit score/equity/documentation,etc),” Gumbinger said. “As well, now that it’s the holiday season, it’s a solid bet that purchase activity will be quieter than it otherwise would be if rates hadn’t legged up in recent weeks.”

Gumbinger continued, “For a longer forward-looking period, and if rates do continue upward, refinance activity won’t be able to come back, curtailing originations to a fair degree in 2017. However, and despite firmer rates, purchase activity should remain solid; I don’t think there will be a real effect on purchase activity until rates are closing in on the 5 percent mark. The slightly firmer rates in place now are no major deterrent for someone who wants to buy a home, even if it may see them need to look at slightly less-costly homes. To the degree that it puts more marginal buyers on the sidelines for a time, it may mean that inventory levels of available homes may have a chance to fill up a bit, which in turn may temper price increases should they get beyond “normal” levels. However, supplies are running well short of normal, so that’s not likely to happen quickly—and it will take a while until even normal levels are reached at this point.”

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