Mortgage Rates Highest in 6 Months

Refinance Activity Will Slow

Mortgage News Daily reports that the most prevalent 30 year fixed rate is now at 3.17% for top tier scenarios. However, with the ten year yield over 1.6%, and based on an historical relationship, 30-year rates should currently be around 3.4% - so mortgage rates might move a little higher.

On Friday, Matthew Graham at Mortgage News Daily wrote: Highest Rates in Months Despite Weak Jobs Report

His article included this graph that shows ten year yield had been declining prior to the pandemic.

Graham notes that rates increased early this year based on optimism around the vaccines and more fiscal spending. The decrease in rates mid-year was likely due to the delta variant and the unvaccinated. With COVID case rates falling again, interest rates are increasing.

In January 2020 (pre-pandemic), the ten year yield was around 1.75% and 30 year mortgage rates were at about 3.6%, and it wouldn’t be surprising to return to those levels as COVID cases decline further (however we will probably see another COVID wave over the Winter).

What will happen to Refinance Activity?

The general rule of thumb is refinance activity will be strong if current mortgage rates are 50bps lower than the maximum of the previous year (this is just a general rule - but it works pretty well).

The following graph shows the MBA Refinance Index (Blue) and the change in mortgage rates (Red). The change is calculated as Maximum in Previous Year minus the current rate). When the red line is above 0.5% (more than 50bps decline in mortgage rates), then refinance activity generally picks up.

Currently the maximum for the last year is 3.18%, and with current rates (today) at 3.17%, refinance activity will probably decline significantly (unless mortgage rates decline again).