Stocks Fall As Mortgage Rates Spike Toward 8%, A Level Not Seen Since 2000

Stocks Fall As Mortgage Rates Spike Toward 8%, A Level Not Seen Since 2000

mortgage rates spike

A newly constructed housing development in Middlesex Township, Pa., Oct 12, 2022. (AP/Gene J. Puskar)

Stocks plummeted Tuesday as the benchmark security for mortgage rates rose to its highest level in 16 years and the Federal Reserve suggested more interest rate hikes could be coming.

The Dow Jones Industrial Average slid more than 500 points, closing down about 1.3 percent, the S&P slumped about 1.4 percent and the Nasdaq Composite sank nearly 1.9 percent.

The yield on the 10-year Treasury jumped to 4.8 percent, its highest since 2007 — a move that is likely to push 30-year mortgage rates closer to 8 percent, according to The Messenger.

Higher mortgage rates have made homeownership unaffordable for many would-be buyers in new and existing home markets. For builders who benefited from the low supply of existing homes for sale, higher mortgage rates have become a major concern.

An average 30-year fixed mortgage rate was 7.31 percent last week, the highest since 2000, according to the recent weekly data from Freddie Mac. On Tuesday, it rose to 7.595 percent, according to daily data from OptimalBlue.

Optimal Blue Mortgage Market Indices, Oct. 3, 2023 https://www2.optimalblue.com/obmmi/

A borrower buying a $400,000 home with a 20 percent down payment on a 30-year fixed mortgage would pay about $930 more today at today’s interest rates than when loan rates were at 3 percent during the height of the covid pandemic, CNBC reported.

The typical 30-year fixed rate on new conforming mortgages, at more than 7.4 percent at the end of September, has jumped far ahead of 10-year Treasury yields, which were just under 4.6 percent at the time, according to Intercontinental Exchange rate data.

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“This nearly three percentage-point gap is big,” Telis Demos wrote for the Wall Street Journal. “The prepandemic average from 2017 to 2019 was under 2 points, according to ICE data. It has narrowed slightly from earlier this year, when mortgage-bond portfolios of distressed banks were being sold off. Still, that raises the possibility that even without more failures, banks moving just to trim their portfolios to raise cash could help keep that gap about where it is—effectively turning just a 5 percent 10-year Treasury yield into an 8 percent mortgage rate.”

Investors fear the Federal Reserve will continue raising rates with several central bank policymakers hinting that‘s what may be needed to fight inflation.

“The odds of a rate hike has increased,” said Gina Bolvin, president of Bolvin Wealth Management Group in Boston. “The speed at which rates have increased has increased uncertainty.”

Investors also fear a higher-than-expected increase in job openings, a sign the economy may not be cooling enough to hold down inflation The Messenger reported. Job openings totaled 9.61 million in the Labor Department’s August Job Openings and Labor Turnover Survey, exceeding an expected 8.8 million, according to consensus estimates from Dow Jones.