March 2, 2021 – How Quickly Could Rates Rise? Interest rates have been so low for such a long period of time that many have taken these record low rates for granted.


Economic Commentary

How Quickly Could Rates Rise? Interest rates have been so low for such a long period of time that many have taken these record low rates for granted. Though we have said this many times during the past year, we must understand that these historic rates will not be with us forever. Record low rates for an exceptionally long period of time would be indicative of a prolonged recession and an even more prolonged recovery such as we had after the Great Recession.

If you are rooting for a quicker and stronger recovery, you are rooting for higher interest rates. In reality, the rates on the 10-year Treasury have been rising steadily since August of last year when it bottomed out at .52%. Six months later it hit 1.30%. It was approximately 1.70% when the COVID recession hit. Does this increase mean that interest rates are going up from here?

Rates and recoveries do not happen in a straight line. We just have to look back to the uneven recovery from the Great Recession to understand what could happen. We hope it does not stretch out like that example, but there are ups and downs in all recoveries. The jobs report released on Friday will give us a picture of what the recovery presently looks like. But the higher rates we are seeing are predicting a rosier picture for our future. The questions of how quickly will rates rise and how quickly the economy will recover are closely related.

Weekly Interest Rate Overview

The Markets. Rates rose sharply last week, continuing the recent trend.  For the week ending February 18, Freddie Mac announced that 30-year fixed rates increased to 2.97% from 2.81% the week before. The average for 15-year loans rose to 2.34% and the average for five-year ARMs rose to 2.99%. A year ago, 30-year fixed rates averaged 3.43%, almost 0.50% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Optimism continues as the economy slowly regains its footing, thus affecting rates on home loans. Though rates continue to rise, they remain near historic lows. However, when combined with demand-fueled rising home prices and low inventory, these rising rates limit how competitive a potential homebuyer can be and how much house they are able to purchase.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

In its latest poll, marketing and research firm Zonda found that 30% of builders reported taking “weeks longer” to start work. And 6% said they were “months” behind. According to Robert Dietz, chief economist at the National Association of Home Builders, by the middle of last year, sales outpaced the start of construction by the largest gap ever. By October, that record-breaking gap had widened even further. And by November, the count of sold-but-not-yet-started houses was up 69% from a year earlier. “The gap is unprecedented,” says Dietz. “There is no comparable period in the data going back to 1963.” Although new home sales slipped a bit in November, they were still 21% higher than a year ago, as demand continued to be supported by low interest rates, a renewed consumer focus on the importance of home, and rising interest in lower-density markets like suburbs and exurbs. On net, sales were up 19.1% for the first 11 months of 2020. But starts have failed to keep pace. The spread between sales and starts is even greater than Census Bureau figures indicate, Dietz says, because the government’s count includes custom houses and those built specifically for rent. Dietz indicates some slowing in sales is necessary and believes builders may be pulling back a tad on taking new contracts until they can catch up. “Builders don’t want to get too far out over their skis,” he said in December. That leaves the inventory of completed-but-unsold houses extremely low. Nationwide, the NAHB counts just 43,000 finished, ready-to-occupy houses nationwide. Source: The Housing Scene by Lew Sichelman

ATTOM Data Solutions, Irvine, Calif., released its fourth-quarter U.S. Home Equity & Underwater Report, which noted an increase to 17.8 million residential properties in the United States considered equity-rich—the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value. The report said equity-rich properties in the fourth quarter represented 30.2 percent, or about one in three, of the 59 million financed homes in the United States, up from 28.3 percent in the third quarter, 27.5 percent in the second quarter and 26.7 percent a year ago, despite the ongoing economic damage caused by the coronavirus pandemic. The report also shows that 3.2 million, or one in 18, financed homes in the fourth quarter were considered seriously underwater, with a combined estimated balance of loans secured by the property at least 25 percent more than the property’s estimated market value. That figure represented 5.4 percent of all U.S. properties with a mortgage, down from 6 percent in the prior quarter, 6.2 percent in the second quarter and 6.4 percent a year ago. Todd Teta, chief product officer with ATTOM Data Solutions, said the continued home-equity improvement during the fourth quarter came as the U.S. housing market closed out one of its best years in the past decade, with the national median home price soaring 13 percent. Values spiked and the nation’s nine-year housing market boom surged ahead even as the Coronavirus pandemic idled or slowed major sectors of the American economy, throwing millions of people out of work. Market gains resulted from a bubble of buyers who largely escaped the pandemic’s financial damage looking to take advantage of super-low interest rates and, in many cases, escape congested, virus-prone urban areas. Source: MBA

It appears that the beach is losing its allure for many homeowners. According to, the percentage of people relocating from one metro to another has gone up, and most of them are former coastal dwellers looking for less expensive places to live. In 2019, 25.5% of buyers left one metro area for another one. In 2020, that number went up to 27.8%, a 9% increase year over year. This is contributing to the overall housing shortage. In fact, in the 10 most popular migration destinations, the supply of homes is down by double digits compared to last year. These patterns aren’t showing any signs of slowing down anytime soon. With remote work continuing to be an option for many white-collar workers in large metros, there’s no reason to continue paying high mortgages when they have the means to relocate to somewhere more affordable. “A lot of young families are moving back to their hometowns to be near their parents, moves they can now make because they’re working remotely,” Katz said. “People are realizing that if they leave Los Angeles and move to a place like the Midwest or Florida, they can afford to live on just one income because their mortgage is cut in half and tax bills are lower.” Source: DS News

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