Why Main Street Should Worry About Wall Street’s Bond Sell-Off
The potential for higher borrowing costs to inflict damage on household finances has grown in the era of extraordinarily easy monetary policy.
Housing market’s outlook is dire.
Photographer: Timothy A. Clary/AFP
The recent leg lower in the bond market has pushed mortgage rates to the highest since the start of the decade. The glass half full people might say that's not a problem since rates are less than half the levels seen during the bad old days of the 1980s when borrowing costs exceeded 10 percent. But that's not the way to think about the potential fallout from higher rates. The real issue is what current mortgage rates represent to the current generation of home buyers. And by that measure, the outlook is rather dire.
According to the Mortgage Bankers Association, the average loan rate for a conforming 30-year mortgage was 5.10 percent in the week ended Oct. 12, the highest since early 2011. Back then, that level didn't hold for long, as rates crashed to 3.5 percent by late 2012 and held at those low levels for years. As recently as July 2016, the 30-year rate was at 3.6 percent. Starting points matter, especially now with home prices at nosebleed levels. According to Black Knight’s August Mortgage Monitor, the monthly payment on the average home has jumped by 16 percent since the start of the year. That's up from a 3 percent increase in 2017, illustrating the effect of rising rates on affordability.