Mortgage Rates Climb


The Mortgage Interest Rate Survey (MIRS) conducted monthly by the Federal Housing Finance Agency (FHFA) reported that contract mortgage rates rose in November 2016. Over the month, rates on all loans increased from 3.60 percent to 3.64 percent. Contract rates on both purchases of newly built homes and purchases of existing homes climbed during the month. Rates on purchases of newly built homes increased by 5 basis points to 3.59 percent while the average rate on purchases of existing homes rose by 4 basis points to 3.66 percent.

The monthly data provided by the FHFA covers the trend in mortgage rates up to the month of November, but the weekly mortgage rate data from Freddie Mac, which includes most of December as well, indicates that rates have clearly begun to rise.  Moreover, the increase in mortgage rates follows the increase in the 10-year Treasury note.

A more seismic impact from a different set of rate expectations has been set in motion by the surprise outcome of the November election. Proposals for fiscal stimulus via tax cuts, government spending and regulatory reform have led to expectations of stronger economic growth, higher inflation and higher interest rates.

A major concern fueled by rising mortgage rates is the response of home sales. However, the level of new home sales is also informed by other economic indicators such as employment growth, wage growth, household balance sheet health, consumer confidence and housing inventory to name a few. The economy has provided evidence of job and wage gains as well as improvements in household balance sheets. At the same time, consumer confidence has been stronger. However, in addition to higher mortgage rates, housing inventory remains low. Nevertheless, taken together, NAHB continues to expect that the net effect of these dynamics will be supportive of continued growth in new home sales over 2017 and 2018.

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