From today's business section of the New York times
Since the election, mortgage rates have climbed roughly half a percentage point to a 16-month high, adding hundreds, sometimes thousands, of dollars to a home buyer’s yearly payments. (The annual cost of a $400,000 mortgage, for example, rose almost $700.)
The speed and size of the increase took many lenders and borrowers by surprise — and the increase is expected to reverberate across the housing industry, particularly if rates continue to rise next year.
For most of this year, American home buyers have benefited from weakness in the global economy. China has been struggling to sustain the rapid growth it needs to avoid political unrest, a deep recession followed political turmoil in Brazil, and a cloud of uncertainty hangs over Europe after Britain’s vote to leave the European Union.
Those factors, on top of efforts by central banks around the world to stimulate economic activity by keeping short-term interest rates low, have increased demand for safe American assets like government bonds and mortgage-backed securities. The result: The cost for American businesses and consumers to borrow had, until recently, remained exceptionally low.
The turnaround, which was driven by postelection market expectations that a President Trump would lift corporate profits, cut taxes and spend money on infrastructure and roads, caught most experts by surprise. The online real estate brokerage Redfin, for example, had initially forecast that rates for 30-year fixed mortgages would remain below 4 percent through next year, said Glenn Kelman, the company’s chief executive.
Redfin has now updated its forecast and is predicting the 30-year mortgage rate will pass the 4 percent threshold. “I think you’re going to see higher rates than we otherwise would have,” Mr. Kelman said, “but more economic stimulus.”
Wall Street is also expecting that the Federal Reserve Bank will increase its benchmark interest rate when it meets next month. That rate — the cost that banks and depository institutions charge one another for overnight loans — has only an indirect impact on mortgage rates. Last December, for instance, after the Fed raised rates by a quarter of a percentage point, mortgage rates went down. But to the extent it reflects the Fed’s confidence in an improving economic outlook, it could signal higher borrowing costs in the months ahead.
For now, said Svenja Gudell, chief economist at Zillow, a real estate data provider, the relatively modest increase in mortgage rates should not have much impact on the current housing market.
On Tuesday, the National Association of Realtors reported existing home sales rose 2 percent at a seasonally adjusted annualized rate in October, its strongest pace since February 2007, before the recession started.
Back then, the average 30-year fixed rate mortgage topped 6 percent, a reminder that even with the recent rate jump, mortgages remain a bargain by historical standards. Thirty years ago, the average rate was about 10 percent.
Still, for buyers who had been counting on paying less that 3.5 percent, the postelection bump represents an unwelcome added cost.
In the last couple of weeks, requests for refinancing have dropped, according to Gregory Gwizdz, national sales manager of Wells Fargo Home Lending, one of the nation’s largest home loan originators. He expects that trend to continue through next year as rates stay at this level or inch higher.
“If people believe rates are on the rise,” he said, “they may try to find that home sooner rather than later.”
Higher rates are often followed by a burst of activity from consumers worried about further increases. But Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he had not seen evidence of pent-up demand. He thinks housing activity is heading for a fall.