In the past week, mortgage rates have spiked tremendously, now averaging 4.02% for a 30-year fixed-rate, up from 3.77% before the election of Donald Trump.
According to David H. Stevens, president and CEO of the Mortgage Bankers Association, it’s the biggest week-over-week increase since the “taper tantrum” in June 2015. “Investor expectations of faster growth and higher inflation are driving the jump up in rates,” he said in a press release. “[It’s] spurring a commensurate drop in refinance activity.”
Not only are people wary of refinancing amid higher rates, regular mortgage applications have taken a hit as well. In the past week, the MBA noted a massive 9.2% drop week over week, seasonally adjusted.
It’s not a secret why. Donald Trump’s election a week ago tanked the bond market and sent rates through the roof—and mortgage rates followed. Now consumers face a tough question: Do I wait this out or not?
As Mortgage News Daily noted, many people assumed the increase was a reflex to a crazy election news cycle that wouldn’t last the long weekend, just like how the Dow’s massive losses during election night were erased by morning`—and continued rallying for the week following.
But no one really needs to freak out, according to Keith Gumbinger, vice president of mortgage data site HSH.com.
“In reality, [applications] have been on a downtrend since June/July,” he told Yahoo Finance in an email. Since the summer, rates had already been firming in anticipation to moves by the Fed—the election has just gave them a push.
Still, not everyone will run from refinancing, says Gumbinger, since 4% isn’t actually that high when you take a step back—plenty of people with 5.25% loans will still prefer saving 1.25% through refinancing. “However, homeowners who need or needed a rate close to 3.5% to make their opportunity to refinance worthwhile are simply going to remain on the sidelines.”
Again, a 4% mortgage rate is not “high” in relative terms. APR for a 30-year mortgage was around 4.5% in January 2014, and 6.6% just before the financial crisis in 2007. And if you go back to 1981, it was 18%. “Present levels are certainly higher than those seen over the summer, but aren’t high by any historical stretch of the imagination,” Gumbinger says.