Mortgage Rates at 20 year highs! September 27, 2022

Mortgage Interest rates have been only going up the last 30 days.  Rates started climbing back in March, and the 30 year rate slowly rose to 6.0% in July.  August gave us a break and it went back to around 5.0%  As of mid-day yesterday it hit 7.0%, which is officially a 20 year high.

Perhaps it should be “unofficial,” because the daily rate records only go back to the beginning of 2009.  Rates got close to this back in 2008, and maybe even a few lenders hit 7.0%.  But the average 30 year rate across the board is now 7.0%.

How does this affect the housing market?  How does this affect Joe Homebuyer?  The payment on a new $400k mortgage is up at least $1000/month since March. That is significant and will bring the housing market to a screeching halt!

Why have rates spiked so quickly?  The obvious assumption is what the Fed has done.  Hiking their benchmark rate so much and so often this year.  But that’s actually not the entire story, or even the largest factor.

The issue comes from what is going on in the bond market in The UK.  That’s an odd thing to consider when it comes to mortgage rates in the United States, but it is important to understand just how huge the market reaction to recent events in The UK has been.  Without going into great detail, what’s important to note is the British 10yr yields have risen more than 1.00% in four business days.

Bonds here have to compete with bonds there and raise yields.  Mortgage Backed Securities compete with 10 year bonds, and also have to rise accordingly.

The Fed has also indicated they are not going to stop raising their benchmark rate until they see a significant decrease in inflation in the US.  So no help from them is on the horizon.  What does this mean for us?  It means 7.0 or close to it is the new 30yr fixed rate reality for now.