Mortgage Rates Hit Levels Not Seen in Three Years

Mortgage rates are going up.  Sounds like I have stated this many times in the past 45 days.  The biggest question that I get every day is will we get a rebound?  I would love to tell you yes, but as far as I can read what is happening in the markets, we are still trying to see where the level will be for the new resistance, as we keep on moving past what we thought would be the top – and that was last week.  In fact, we have seen the rates jump now another .25 percent and are approaching 4.5% very quickly on a 30yr conventional loan.

In October, many of us were quoting 3.375% depending on what the facts were to the loan, but now we are a full point above that mark some two months later, bringing the rates to their highest levels in nearly three years.

The overall spike in rates since the election is now on par with the 2013 taper tantrum.  You will hear repeatedly "do not worry... rates are historically low..." and my personal favorite "for every .125% in rate, the payment only rises $7 per $100k borrowed."  All of that is true, except perhaps for the "do not worry" part.  Some borrowers may need to worry about no longer qualifying due to debt-to-income guidelines. 

Just the other day I talked to a group about the meteoric rise in interest rates, and what this change will do to the people who are looking to buy a new home.  If we look at a average loan of $200,000, we will see this change of one percent equate to the mortgage costing $100 more per month.  This may not sound like a lot to the CEO of some major firm, but to the average homebuyer, this might just price them out of the area that they were looking to buy and have to settle for something less expensive.  This dynamic is not congruent with "not worrying." 

Oh, and you must worry if the rates continue to move up.  Can that happen? Right now, the trend is not our friend and the train is moving up the mountain – but the challenge will be that can they sustain that level?  Right now, I do believe the markets are riding on a cloud of optimistic euphoria and that the cloud will dissipate as the new year begins.  Yes, higher rates are a necessity in our economy to grow down the road, but these rates can fall again.

I will be the first to tell everyone that I do not know everything about mortgage rates and where they are going.  I can read the market and have a very good sense on what they should be doing, but right now, I am just as bewildered as the next person in my position.  If anyone tell you they know the answer, they will be extremely wealthy to predict this scenario that is unfolding before us.

In summary, the trend is not our friend.  In this market, you must lock as soon as possible.  Even if we get a small rally, banks will be hesitant to pass along improvements.   There is just way too much volatility.