Mortgage Rates: Moving on Up

Refinance Activity Will Slow Sharply

Mortgage News Daily reports that the most prevalent 30-year fixed rate is now at 3.59% for top tier scenarios. Earlier this week, Matthew Graham at Mortgage News Daily wrote: Highest Mortgage Rates Spiking at Fastest Pace in a Long Time

This morning's additional weakness in the bond market brings the average conventional 30yr fixed scenario closer to 3.625% (as always, rate quotes depend on multiple factors, and the overall range is very wide).

With the ten-year yield at 1.73%, and based on an historical relationship, 30-year rates should currently be around 3.6%. 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 3.56%.

If the ten-year yield rises to 2.0%, 30-year mortgage rates will probably increase to around 3.8% - still historically very low, but up significantly from the levels in 2021.

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 3.22% (excluding this week), and with current rates at 3.59%, refinance activity will probably decline significantly over the next few weeks.