Since the election 10-year treasury rates are up 0.405 percentage points. Since October 1, rates are up 0.665 percentage points.
Because mortgage rates closely follow 10-year treasury rates, there is panic in the mortgage market, especially from buyers who have not yet locked in rates.
Trump Win Juices Mortgage Rates
The Wall Street Journal reports Trump Win Juices Mortgage Rates.
Mortgage rates have spiked in the wake of Donald Trump’s election victory.
Average rates on 30-year fixed conforming mortgages hit 3.87% on Thursday, climbing a quarter of a percentage point since Tuesday’s market close, according to MortgageNewsDaily.com, which tracks mortgage rates. That is the biggest increase in a two-day period since June 2013 when the Federal Reserve announced its plan to start easing its stimulus program, according to the site.
Mortgage Rates Skyrocket to 4%
The WSJ numbers are from last Thursday. Rates spiked again on Monday.
Mortgage news Daily says Mortgage Rates Skyrocket to 4%. New Normal?.
It’s been a long time since anyone could say that top tier conventional conforming 30yr fixed mortgage rates were at 4%. Indeed, even last Monday, the thought of 4% rates would border on preposterous. But what a difference a week makes! Over the past 3 days, rates have moved higher at a pace that’s only matched by the worst 3 consecutive days of the mid 2013 taper tantrum. There were several days in 1987 were rates moved higher more quickly on an outright basis, but the more recent spikes have constituted much larger proportions of respective ranges. In both cases (1987 and 2013), the recent major highs in rates occurred 6 years early. Simply put, the 2013 rate spike traversed more of its 6-year range than the 1987 spike, and the past 3 days have matched 2013’s pace.
Granted, by the time we look at the weeks and months that preceded the 2 most recent rate spikes, 2013 remains a bigger overall move toward higher rates. But that same caveat is the reason the current rate spike is as scary as it is: we don’t yet know what the coming weeks and months will look like! As recently as last Thursday, quite a few market participants figured that rates had gotten so much higher so quickly, that it surely must have been a knee-jerk reaction to the presidential election that would soon be reversed after the 3-day Veteran’s Day weekend. Yet here we are on Monday with rates still surging higher.
For most of the Summer, rates never moved outside an eighth of percentage point range. Even when rates are trending higher or lower, it typically takes weeks to see a move to the next eighth point increment. Now we’ve seen rates move an eighth of a point higher on EACH of the past 3 business days. This has only happened a handful of times, ever.
Mortgage Rate Panic
Diana Olick says Panic in housing market as Trump effect pushes mortgage rates to 4%.
“The situation on the ground is panicked. Damage control,” said Matthew Graham, chief operating officer of Mortgage News Daily. “People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn’t get it.”
Mortgage rates follow loosely the yield on the 10-year Treasury bond. That yield on Monday hit the highest level since December, as investors flooded the stock market and pulled out of the bond markets. The runup on stocks is backed by a belief that the Trump administration will be a boon to the economy overall and the banking sector specifically.
Higher mortgage rates, however, will throw a wrench into an already shaky housing recovery.
Economists at the Mortgage Bankers Association are now predicting that rates will, “trend higher than we had previously forecast, which will more quickly decrease refis.” They still predict a strong home purchase loan market, but they say they will have to “assess the impact of policies as they are rolled out with respect to overall growth and housing market implications.”
Inflation Scare or the Real Deal?
I am inclined to believe this is an inflation scare. The market is pricing in lots of things that may not happen: a stronger recovery, quick spending in infrastructure, Fed rate hikes, and an inflation boom caused by Trump.
I think the strong dollar will put a damper on exports, a global trade war will slow growth, Christmas spending will be weak, dealers will have to offer even bigger discounts to sell cars, and the rise in rates sure will not help housing.
Stronger inflation may be coming, but it will take time. Meanwhile, the above list is strongly disinflationary, as is a falling yuan and falling oil prices.
The market is likely way ahead of itself here. The Fed can now hike, however, just as it wanted to do. Hallelujah.
At the current pace, assuming the Fed does hike, the pace is glacial, once a year, in December.
Central banks have a multitude of things to worry about: Brexit trade wars, Trump-sponsored trade wars with China, car inventory, and a slowing US housing market.
There is simply far too much consensus about inflation for my taste, and the irony is that it comes from the very same people who thought a Trump election would send the markets and the economy crashing.
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Mike “Mish” Shedlock
All the things mentioned (falling oil, gold pulling back, US Dollar advancing) are disinflationary / deflationary. Bonds are sold when the perception is either inflation or default. With most asset classes selling off, the big picture is more likely a liquidity / solvency crisis unfolding.
The bond market is pricing in a faster recovery. Meaning Trumpenomics is good news, to them at least.
14 years ago I got a floating rate mortgage – 50 bs pts above 1 month LIBOR. Yup my interest rate floats every month. For years and years it’s been below 2%. Many of the years it’s was 1.75% .
Best decision I ever made –
How much of a down payment was required?
I think they ( Merril Lynch ) offered 80% LTV at the time but not certain.
Just stop printing. We don’t need a rerun of 70s style stagflation.
70s inflation was the chaos caused by the US defaulting on Bretton Woods. Oil producers demanded many more dollars that were suddenly no longer gold backed.
As Mish has always said, hyperinflation is political.
Mish,
You have always been correct in saying that the Fed was artificially suppressing rates. That without Central Bank intervention rates would never have gone as low as they did. All the CB’s had to do was get out of the way and markets would restore itself to a natural relative level where someone like me would once again be willing to participate. I’ll say it again. rates on the 1 yr should be somewhere around 2%. No scare, just a restoration to normalcy.
There is no “normalcy” any more.
Debt levels to GDP have risen … any attempt at “normalcy” will CRUSH economy
https://alfred.stlouisfed.org/series?seid=TCMDO&utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=alfred
I agree, ‘normalcy’ is not the correct word. Fair Value is the correct term. Further predicating it with the term ‘relative’ – for the semantic police.
It will crush the debt superstructure. Which is a very, very different thing than the economy.
Lower “asset” prices across the board, enables productive actors to acquire more of those assets. Putting them to productive use, rather than idling/hoarding them while living lavishly off of borrowing against their “appreciation.” And, Keynesian nonsense notwithstanding, it’s production which grows the real economy.
The Fed has become the world’s CB, which is one reason for ZIRP, as foreign holders of dollar-based debts are going to explode with a rising dollar and rates. The other reason is the interest expense on the debt, which was deemed more important than pensions and insurance funds, and savers. Govt is alwasy prioritized over people.
Not that I agree with them… but the progressives would say everyone in society is assuming a small part of the pain (as inflation), rather than a small number of people getting destroyed.
That was their justification for the bank bailouts. And I’m sure that would be their justification for all the social welfare, and other things that explode the debt.
There is a full blown home ownership crash occuring nationally. PRICES conitnue to rise mostly due to upper-end sales activity skewing the lower end. Throw in the 10-year grace periods ending for HELOCS form the 05-08 era and home owners are seeing their mortgage payments double – there’s roughly 3 million of them.
People never learn, he who fails to learn from history is doomed to relive it. This could be 1980 all over again!
Another deja vu, all over again!
Off topic…sort of. I know many here are against Trump’s trade agenda but I keep looking at this disaster we face where our jobs are bleeding away to imports, and all we seem to har is that “technology” will provide…either in jobs or cheaper consumer goods. My contention has been that this is all very dangerous but the greatest threat is not to technology displacing our jobs as much as imports destroying our manufacturing base. We have watched as China has amassed considerable raw resources as well as huge over capacity in manufacturing, and I have contended that they can effectively export to us for virtually free in the short run to keep their factories running while simultaneously killing off the last of our domestic manufacturing.
I thin this article demonstrates the trend.
http://www.zerohedge.com/news/2016-11-15/import-prices-decline-record-27th-month-china-exports-most-deflation-6-years
Deflation is NOT a positive trend if it destroys our ability to earn, to pay for those things we need. Does anyone really think that once our manufacturing is completely decimated, that Chinese prices will not rise substantially, especially for necessary items?
Along those lines, which country will have the capacity to sustain a long-term military campaign. The one that produces the world’s steel and manufactures or the one that produces the world’s debt and stock buy-backs?
So long as the US can print global reserve currency units things will continue as they are. There is no motivation for anyone to change anything.
That inertia is how the world gets to ‘places’ Especially to places that everyone ultimately wishes they weren’t at.
Mish, I always read your column and love it! But I’ve learned at this point to never listen to media “freak outs” anymore because “the only thing to fear is fear itself” We survived four years of WW II. We survived Nixon, 4 years of Carter, 8 years of Reagan, 4 years of George HW Bush, 8 years of Bill Clinton, 8 years of GW Bush (9/11, Housing Crash, Economic Crisis) 8 years of Obama, so at some point you have to say, “You’re right.” It’s not about political divisiveness. It’s the economy. Always has been and always will be. On housing, we all need to live somewhere, mortgage applications are falling and investors have pushed up home prices. A 4% interest rate is still historically low but don’t expect many to refinance soon except for the ignorant, clueless or the ones who just didn’t want to refinance anymore who stayed on the sidelines. If anyone wants to refinance now at 4% if their rate is 5 or 6%, don’t be greedy and do it now. Or, be greedy and wait for the lowest mortgage rates EVER!!! Higher rates are not necessarily a bad thing. They may even be a boom for the housing market because housing prices drop, they become affordable, the Millenials might be able to afford homes, we have a solid, responsible housing boom, more jobs and it actually helps the economy. So, don’t “freak out” over higher mortgage rates. It might be a blessing in disguise.
Nearly everyone who could refinance already did. Refis will collapse
Oh good. Maybe I will finally buy a house once higher mortgage rates push the buy price down.
Anyone know what a ‘housing recovery’ is ?
A. Houses feel better.
B. Mortgage holders manage to catch up with payments.
C. The price of housing allows the walls to keep people out instead of in.
D. Owners recover purchase/mortgage costs for personal use with ultra low rates and inflating prices.
Ironically, the Fed desperately wanted a steeper yield curve – which they now have.
If/when they raise short-term rates, they will actually be flattening it.
Regarding the “inflation threat” that has seemingly materialized overnight, out of nowhere (with oil down 15% in a month to $45/bbl), I believe it is extremely pre-mature. Among other factors, China will be exporting large doses of DEFLATION to the rest of the world for the foreseeable future.
A bit off topic, but I can’t wait to see the multiple, enormous gaps get filled on the charts of $TNX and $TYX.
The 10 year @% 2.23 is not high by historical measures and reflects higher inflation expectations.
Mr Trump has suggested that he will have a large infrastructure program.This will require more borrowing.There also seems to be a looming trade war ,especially with China.One of China’s weapons in this trade war is selling some of its huge horde of Treasuries .Between more borrowing and greater supply resulting from Chinese selling,rates are inevitably going higher and maybe much higher.
We could have a “boiled in oil” slow deflationary trend…for decades. That is what Finance probably hopes it can pull off, themselves making money all along exploiting every dip and tick. Or we could enable markets to act as theorists BELIEVE they do and have wonderful prosperity for everyone and a general tendency toward equilibrium…..if we’d only drop our BELIEF in general equilibrium and implement a universal dividend and a retail discount. That way we could have plenty of demand and deflation at the same time. It’s really so simple….when you actually look at the policy effects.
“There is simply far too much consensus about inflation for my taste, and the irony is that it comes from the very same people who thought a Trump election would send the markets and the economy crashing.”
Excellent write up.
Deflation coming … 10yr yield will hit 1% before it is over.
Just looking at Trump’s (supposed) $1 trillion spendalooza …. have the “experts” even bothered to look at it? …. It is spread over 10 years … and in the form of public – private partnership … where much of the spending by private sources with carrot of tax credits … according to Trump it will be revenue neutral (taxes on the increased activity will pay for the public portion) … of course, that is nonsense – there will be (large) deficits. But, anyways, it is a far cry from fedgov stroking a check for $1 trillion spent in the next few years.
Hmmm… $1 trillion over 10 years = $100 billion/year = 2.5 million jobs at an all in cost of $40,000/year. That will cut official unemployment from 7.8 million people to 5.3 million people. Won’t scratch unofficial unemployment including U6, people on disability/welfare.
Well, you are assuming new hires … how much work by existing workers?
Also, population grows by ~ 3 million / year … with participation rate of ~ 63%
Average 30yr mortgage rate since Monday the 7th.
Nov 14 2016 .. 4.00% : (–) +0.15
Nov 10 2016.. 3.87% : (–) +0.12
Nov 09 2016.. 3.75% : (–) +0.13
Nov 08 2016.. 3.62% : (–) +0.03
Nov 07 2016.. 3.59% : (–) +0.00
http://www.mortgagenewsdaily.com/data/30-year-mortgage-rates.aspx
And playing with the mortgage calculator
Last Monday a $300K home with 10% down payment (payment = PITI)
$1768.53
Yesterday
$1831.52
at yesterday’s rate home price needs to fall to $289K to keep ~ payment of $1768.53
http://www.mortgagenewsdaily.com/mortgage_calculator/
There will be no global trade war (at least not between the US and the rest of the world). The US will be one of the few (only?) countries with a chance of prosperity in the near future. The rest of the world will have no choice but to trade with us on our terms.
Yep … oh, did I mention Germany ran a $75 billion surplus with US in 2015?
And Merkel thinks she’ll call the shots with The Donald?
Trump in the driver seat.
https://www.census.gov/foreign-trade/balance/c4280.html
We have long time horizon data for rates. There have been previous periods of bottoming rates. At historic bottoms rates have never spiked upward. They have hit bottom and then slowly and smoothly arced upward. I expect the same this time. Plus a second Great Depression of course.
Yes, rates spiked much higher (and for far longer) during the 2013 “Taper Tantrum” – only to drop down to record lows again in less than three years.
With rates far lower in ALL other G8 countries, these Treasury yields will not stay even this high for long. (Relatively) high Treasury bond coupons, coupled with the lure of substantial F/X profits will attract foreign buyers like ants to a picnic.
We beginning the ascent of “the other side of the Christmas tree” (a phrase used by James Benham in the early 1980s). Keep your liquid capital safe and laddered in short term paper and follow the very long climb up. Then, when rates seem IMPOSSIBLY high in the darkest days of the correction, lock in your capital in 10 year paper and relax or tie a ribbon around the nice bon-bon for your heirs. The cleansing rate uptick will be blamed on Trump but it was inevitably baked into the cake.
Really?
The answer to high rates is even higher rates … till they collapse
NIRP + QE in the cards
It is the debt level, stupid
(not you … just channeling james carville)
Why is no one mentioning the risk of govt defaults as the cause for higher rates? Foreign govts holding massive amounts of dollar-based debts are going to be defaulting left and right with rising rates and dollar, which will continue due to RELATIVE safety. Who wants to hold govt bonds when the bubble pops?
Also, the Fed does not control rates, it can only influence at the margin. Global flows dwarf QE and anything else the Fed does. They have always follwed the market. There primary interest is serving their shareholder banksters, who profit nicely from more govt debt. Greed is not sustainable or becoming. Where else does global capital have to go when the govt bond bubble pops? Now you know why stocks continue to levitate, especially the DOW, which is the prefferred choice of int’l flows.
Give it a little time. The economy will go into crisis mode and the mortgage rates will fall to record lows once again. Patience.
This is a tremendous buying opportunity for those of us who were selling in June/July at the peak.
There are massive gaps all over the charts of $TNX and $TYX. EVERY significant gap on those charts ALWAYS get filled eventually, and these will too.
Why is no one mentioning the risk of govt defaults as the cause for higher rates?
Yes indeed.
Mish I agree with u and your readers that the strong dollar and that the extreme amount of debt at every level will slow growth and bring interest rates back down at some point.At the same time I’d like to mention Darth Vader-George Soros once again.This man thinks he’s God! There r two articles about him over on zero hedge -the Clintons and Sores, and Soros and mega Doners on how he will continue to take down Donald Trump and his presidency. Soros money supports all these extreme left wing groups like act up and move on.org. I know that they can b a little overly dramatic on zero hedge but not with this man.He wants to move political power away from local control to a one world govt.with one currency, military police-u know how all the end time groups think every new Pope r president is the antiChrist. He may b getting close!
Imagine how this would rattle the markets. How much Clinton foundation and Soros money would it take to buy off enough electors ??
Electors in a plot against Trump to throw the election into the House.
” 2 presidential electors encourage colleagues to sideline Trump
11/14/16
Two Democratic members of the Electoral College have launched a radical last-ditch attempt to stop Donald Trump from winning the presidency.
P. Bret Chiafalo, a Washington State elector who has already declared his opposition to Hillary Clinton, and Micheal Baca of Colorado have launched what they’ve dubbed “Moral Electors,” an attempt to persuade 37 of their Republican colleagues to bail on Trump — just enough to block Trump’s election and leave the final decision to the House of Representatives. They have the support of a third elector, Washington State’s Robert Satiacum. ”
http://www.politico.com/story/2016/11/electoral-college-effort-stop-trump-231350?cmpid=sf
.
I read in another article about that, that one or two of those electors refuse to vote for Crooked Hellary because of what she did to Bernie, and they were Bernie supporters. The politico article leaves that out. Politico is one of the many biased news sources.
Bernie electors are not in love with Trump either.
Speaking of Hellary… reports are she was drunk and violent on election night.
http://www.thegatewaypundit.com/2016/11/report-hillary-clinton-became-physically-violent-election-night-tore-robby-mook-john-podesta/
http://www.freerepublic.com/focus/f-news/3494561/posts
.
“Bernie electors are not in love with Trump either.”
No kidding; ya think?
Thanks for posting the link to the story about Hellary losing it. Most of us assumed that.
For anyone who thinks we’ve been in a housing recovery, here’s what a housing recovery is not — consumers are not able to afford homes because investors gobbled them up and artificially inflated home price in the process. Builders then hold off building new homes because only so many consumers can afford them. Consumers are priced out of the market and rents go up while consumers are stuck with low wages and of course millennial are still holding some with very high student debt. Nobody wins except maybe the investors who can rent out the homes to multi-generational families who split the costs (or friends who do the same). It seems like a stagnant recovery at best and the only way to get housing going again for the very large millennial generation is for prices to become affordable or wages to go up. Not sure how to get to the latter? Any suggestions? How about raising the corporate debt rates so high for companies going overseas so that cheap labor is not so cheap anymore. Those who stay in the country can continue with the low rates so they can keep buying back their stock and make their company look good for shareholders. I’m sure there’s something wrong with that plan like banks agreeing to it but can’t think of anything else right now. If housing is to help spur economic recovery, it’s short-term pain for long-term gain (and done in a responsible way this time. At 60 mph rather than 120 mph).
Well put, Tony. With a Total Debt to GDP ratio of approximately 350 percent, how can there be
“normalcy”? What period in US history can one point to and compare this one to? The previous peak
was in 1931 at 240 percent. We passed that in 1998, roughly, and went past the crucial 275 percent level that Lacy Hunt always refers to around 2000. Prior to 2000, the US averaged 4.2 percent GDP growth annually. Since 2000, since passing the 275 percent Total Debt to GDP level, the US has averaged around 1.8 percent annually. There is no “normal” and prior interest rate levels from prior periods mean nothing today. We have had a number of meaningless inflation scares since 1999…
1999 was one, followed by 2007, followed by 2009 to spring 2010 and then August 2010 to spring 2011 and then the really big one in 2013. The same people…for the same reasons…wrong each time. As they will be wrong again, this time in a really big way. I live on the ocean in New Jersey.
In a really big storm, the waves come crashing in, relentlessly coming closer to the dunes, then your house. But every so often, even in Sandy, there’s a lull. its very brief, but it almost seems as though the waves are receding dor a brief moment. But then reality, the storm, reasserts itself with a vengeance and the waves coming crashing in again, even closer. The storm we are in now is clearly, to me at least, deflation. Every so often there is a brief lull, these “inflation” scares, but then the deflationary storm reasserts itself, even stronger than before because of the temporary lull, and comes even closer. Isn’t that what we’ve been going through for years? Isn’t every “inflation bottom”
lower than the previous one? Hasn’t every new low yield in the long bond been lower than the one before? So maybe…Isn’t it just happening again? What is so magical, so unprecedented, about borrowing and spending? Isn’t that what got us here? So how will more of the same fix it? If the Japanese couldn’t spend and borrow their way out of their debt problems, if Europe couldn’t, what makes anyone think we can? We’re not special..the laws of reality have not been suspended for the United States of America. I’ve met Mr. Trump and I like him. My Dad worked for him years ago and he really liked him. And yes…he can temporarily make GDP growth 4 percent by borrowing and spending…and maybe the CPI will tick up for a bit…but the ensuing increase in yields will hit that mountain of debt…and it will all come crashing down again..just like 2013 but worse. That…led to this…the near recession we’re in now. What will the next one lead to? Each of these so called inflation scares have done nothing but bring the storm of deflation one step closer to shore.
One of these days…it will bring the house down.
During most of my long life, mortgages at 6% or less were a fantastic deal, yet now people panic at 4%.
There is no reason to panic as present rates are still very low. Now the lower rate deals with low down payments, cause me great concern.
Very few people need a $1,000,000 house and those that do can put 20% or more down. The rest of us need to get comfortable with less and not more.
Our concerns should be with all of the future bankruptcies by the people who sought more rather than less as one way or another we savers will have to pay in one way or another for their foolishness.
Slavery is now illegal thus we cannot buy nor sell indentured servants. Debtors prisons are also a poor solution as housing the deadbeats costs more than they owe.
The one thing the Donald can do on day one is ENFORCE THE ANTI-TRUST LAWS.
That will fix many things including the rise in healthcare costs.