"Mortgage Rates Leap Toward 4.0%, Highest Since October 2019"

With the strong employment report for January, interest rates have increased.

Mortgage News Daily reports that the most prevalent 30-year fixed rate is now at 3.85% for top tier scenarios. Matthew Graham at Mortgage News Daily wrote today: Mortgage Rates Leap Toward 4.0%, Highest Since October 2019

If we disregard the once-in-a-lifetime volatility seen in March 2020 (and we absolutely should), today's mortgage rates are now in line with the highs seen in October 2019.  The average lender is now quoting conventional 30yr fixed rates in the 3.75-3.875% neighborhood.  That's a full eighth of a point higher than yesterday, and more than a full percentage point higher than the lowest rates in August 2021.  Many less than perfect loan scenarios will see rates over 4%.

With the ten-year yield at 1.93%, and based on an historical relationship, 30-year rates should currently be around 3.8%. So, mortgage rates are as expected based on the ten-year yield.

The graph shows the relationship between the monthly 10-year Treasury Yield and 30-year mortgage rates from the Freddie Mac survey.

Freddie Mac has a similar graph here with a linear fit (using data since 1990).   Using their formula, 30-year rates would also be around 3.75%.

If the ten-year yield rises to around 2.15%, then 30-year mortgage rates will likely increase to around 4.0%.

Of course, rates are still historically very low. But rates are up sharply from the recent lows. Here is a long-term graph of 30-year mortgage rates (Freddie Mac PMMS, February is today’s rate).

Higher rates will impact affordability. Based on today’s mortgage rates, affordability has declined to levels not seen since the housing bust (I’ll have more on this later this month).

Stay focused on Inventory

If mortgage rates slow the housing market, we will see it in the inventory numbers (not yet). I’ll be posting local inventory for January soon - the Denver Metro Association of Realtors® (DMAR) reported: DMAR Real Estate Market Trends Report | FEB. '22

While traditionally the market sees a 70 percent increase in new listings from December to January, the market ended down 17.77 percent in new listings compared to 2021, a 31.04 increase from the previous month. Likewise, the market ended with month-end active listings at a historic low of 1,184. To put into context, that is over 10 times less inventory than normal. 

Last year at this time, there was little inventory. This year, there’s nearly half as much at 48.88 percent less, which will likely translate to fewer homes being bought and sold over the course of the year as there is less to choose from in the Denver Metro area prompting the continuation of extreme bidding wars.

emphasis added

Right now, inventory is at record lows.