The Blubber

Wednesday morning saw the average rate on the widely used 30-year fixed mortgage reach 8%, marking the highest level since mid-2000, as reported by Mortgage News Daily. This notable development coincides with surging bond yields, reaching levels not witnessed since 2007. Mortgage rates, which loosely track the yield on the 10-year U.S. Treasury, have experienced significant upward movement.

The recent weeks have seen a pronounced increase in rates as investors assess various economic indicators. The U.S. Census Bureau's report on housing starts for September, while showing growth, fell short of expectations, contributing to the ongoing trend. Concurrently, building permits, a predictor of future construction, exhibited a decline, albeit less than anticipated. The prior week's unexpectedly strong retail sales figures further added to uncertainties surrounding the Federal Reserve's long-term strategy.

The surge in rates has led to a sharp decline in mortgage demand, with applications dropping nearly 7% in the past week compared to the preceding week, according to the Mortgage Bankers Association.

Matthew Graham, Chief Operating Officer of Mortgage News Daily, noted, "Here’s another milestone that seemed extreme several short months ago," highlighting the rapid shift in the mortgage rate landscape. While the 8% rate is noteworthy, Graham pointed out that some borrowers are still securing rates in the 7s through buydowns and discount points.

Homebuilders are increasingly using buydowns as a tool to assist customers in affording homes, primarily through their mortgage subsidiaries. Although this financing approach was sparingly used in the past, it has become a prominent incentive among builders in the current market, according to industry sources.

D.R. Horton, the nation's largest homebuilder, acknowledged this shift in strategy, stating, "Although our mortgage company has been offering slightly below market rate loans most of this cycle (just to be competitive), the full point buydown for the 30-year life of the loan we’ve been referring to recently as a builder incentive is not something we had done in previous cycles, at least not on the broad, majority basis we are doing so today."

In contrast to the 8% rate, just two years ago, the average rate on the 30-year fixed was as low as 3%. Illustratively, a buyer acquiring a $400,000 home with a 20% down payment would now face a monthly payment nearly $1,000 higher than it would have been two years ago.