Mortgage rates soar to 14-month high

Half a percentage point is not "soaring".

"Soaring" would be going from 3.5% to 7.3%.

http://blogs.wsj.com/economics/2013/06/03/vital-signs-chart-mortgage-rates-moving-up/

That's a pretty dramatic rise in a couple of weeks. I think the rates will go down a bit and then start to rise on a less dramatic rate in the fall. In year I'd guess 4.25-4.50.

NYCMatt
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Half a percentage point is not "soaring".
"Soaring" would be going from 3.5% to 7.3%.

That would be "exponentially" soaring.

No.

"Exponentially" soaring would be going from 3.5% to 35,000%.

You need to actually employ "exponents" for it to be "exponential".

An exponent need not be a whole number.

3.5 can be raised to the power of 1000/999. That brings us to 3.50439 (rounded) -- an exponential increase.

I don't believe in math, but I'm sure someone else can demonstrate what exponent brings 3.5% up to 7.3% -- which is indeed "soaring".

Alanhart, that's completely wrong.

Exponents in their conventional use would require a boost at least in the hundreds, if not thousands of percent.

Prove it.

I cannot "prove" common sense. Duh.

3.5% squared is only 12.25% -- still much less than 1980s peak mortgage rates.

Fine. So the minimum exponent would be "2".

Meaning it's not going up "exponentially" until we hit 12.25%.

Wrong. It goes up exponentially if it's raised to the power of anything the tiniest atom greater than one.

Mortage rates are still historically very cheap. All you are seeing is a pricing out of Q.E. which in all liklihood means rates go up 50 to 100 bps. And even if the ten year climbs 75 bps points over the next 12-18 months, mortgage rates would still be very attractive from a historical perspective. I think you are overly influenced by recent mortgage rates which were ridiculously low by any standard.

Taking the emotional -- sticker-shock and/or historical perspective -- out of it, it's still a 14% increase in rate, and that's quite substantial.

Not when you consider that the rates are absurdly low to begin with.

I eat one candy bar every day.

I up my consumption to two. I've just increased my daily candy consumption by 100%. But it's hardly "substantial".

If candy bars are 25% of your budget, it's certainly substantial.

Matt you are starting to lose your figure. Could I suggest taking up smoking?

But smoking kills.

Percentages don't make any sense at the zero bound. Volatility in rates is best expressed in basis points and not percentages. In other words one might think rates can go up or down(let's assume one standard deviation)roughly 50 bps at different interest rate levels but and while that translates to 50% at today's levels, that same 50 bps might apply at 7% rate environment, however I doubt 3.5%(50%) would be one standard deviation there.

>But smoking kills.

Only on TV.

"Percentages don't make any sense at the zero bound. Volatility in rates is best expressed in basis points and not percentages."

Just like at the higher levels, volatility in *points* make less sense than do percentages.

For instance, the Dow Jones Industrial Average. Business reporters are still screaming about how a 200-point drop is a "plummet", "tank", or even (most amusingly) a "bloodbath on Wall Street!" as if we're still in 1986, with the Dow trading at around 2,000. Yes, a 10% drop would have been quite a bad day. But when the Dow is over 15,000, a 200-point drop is now a normal daily trading variance -- less than 2%.

Thanks for the analysis.

For the stock market percentage lognormal volatility holds, and while interest rates can go negative, the s&p 500 index cannot go negative. the anology does not work the same for stocks and interest rates.

Not that I believe it would, but if interest rate were to increase at current velocity, it would hit 6% in a year. That is still lower than the 7.3% that Matt has determined to be the definition of "soaring." So Matt's math is right as usual. We should not doubt him.

So back to the original question. What do you think rates will be a year from now?

Percentages don't make any sense at the zero bound. Volatility in rates is best expressed in basis points and not percentages. In other words one might think rates can go up or down(let's assume one standard deviation)roughly 50 bps at different interest rate levels but and while that translates to 50% at today's levels, that same 50 bps might apply at 7% rate environment, however I doubt 3.5%(50%) would be one standard deviation there.

My question would be: who is a rise in rates going to affect? I bet those who were going to refi already have.

And in the market where I'm working with my clients (think Downtown/UWS), buyers have to demonstrate the ability to waive the mortgage contingency just to get an accepted offer.

Sure, some of those buyers then turn around and procure mortgages, but is the difference between 3.5% and 4.5% (or 5.5%) going to deter them, given that they either already have the cash or can get their hands on it?

ali r.
DG Neary Realty

Sunday, I think the simple answer is to figure out where the ten year treasury would be right now if the Fed wasn't engaged in Q.E. I believe that rate would be roughly 3% and by extension Mortgage rates are typically around 200 basis points above that rate. So my guess would be roughly a 5% mortgage rate give or take 25 bps.

In response to First Porch. One thing I'm seeing in my neck of the woods(and I believe this is true of NY Condos in general) is that more properties than ever are going to investors than in previous years and that many of these investors are paying cash or are prepared to pay cash. They are looking for a safe place to park cash and view real estate returns as superior to purchasing a treasury and more tangible and reliable than buying some stock.

This could change, some early institutional money is starting to signal and over-heated buy-to-let market, and if treasuries rise enough they could provide an alternative to the more hands-on-required approach to real estate.

i always have doubt about that institutional money goes into nyc real estate market. maybe i am naive. considering the high round-trip transaction in nyc, is it a good idea to get into real estate market here vs somewhere else with lower transaction cost?

There's some, but on balance you may be right. There are though foreigners who buy multiple units in NY because NY is something they know as opposed to other regions of the country.

I like when C0lumbia C0unty gets all serious and uses big words and then casually slips into the lingo. Reminds me of the old days.

The sudden increase in interest rates is probably related to the market swoon in Japan, which caused people to have to liquidate assets to cover margin calls.

It is highly unlikely that the Fed will let mortgage rates climb significantly as they have. A 1% increase on a $100,000 loan is a ~$50 monthly increase in payments, which increases at an increasing rate. Given the strict new rules for mortgages, that will price a lot of people out of the market.

Watch for those rates to come back down again.

"Buyers have to demonstrate the ability to waive the mortgage contingency just to get an accepted offer...."

In other words, they have to have all-cash? Let's see how long that lasts.

When is an increase not sudden?

When it is foretold.

The market has a term structure of future implied forward rates(the current two year treasury and one year treasury implies a one year treasury rate one year in the future). It's highly inaccurate and never correct. It just represents the term structure of rates. So we know the market is lousy at predicting increases and decreases in rates.

"I like when C0lumbia C0unty gets all serious and uses big words and then casually slips into the lingo. Reminds me of the old days."

He was merely quoting you directly, with no comment.

>He was merely quoting you directly, with no comment.

Looks like his first sentence quoted NYCMatt.

http://money.cnn.com/2013/06/06/real_estate/mortgage-rates/index.html

This week, the average rate on a 30-year fixed-rate mortgage jumped another 10 percentage points to 3.91% and are up from 3.3% in early May, according to mortgage giant Freddie Mac. Meanwhile, those seeking a 15-year loan received an average rate of 3.03%, up from 2.56% -- a record low

"It's unlikely that rates will ever be that low again," said Doug Duncan, Fannie Mae's chief economist.

Those who didn't take advantage of record-low rates have missed the boat -- at least for now. Here are three reasons why.

10 percentage points? Really? Maybe not the best source for info/advice.

Ten basis points in one week. The article was written June 6th, and then proceeds to point out the 3.3% rate earlier in May. A basis point is 1/100 of a %.

We know, you imbecile.

Cha-a!