More selling in U.S. bond markets Monday pushed mortgage rates to a psychological breaking point.
The average contract rate on the popular 30-year fixed mortgage hit 4 percent, according to Mortgage News Daily, a level most didn't expect to see until the middle of next year. Rates have now moved nearly a half a percentage point higher since Donald Trump was elected president.
"The situation on the ground is panicked. Damage control," said Matthew Graham, chief operating officer of Mortgage News Daily. "People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn't get it."
Mortgage rates follow loosely the yield on the 10-year Treasury bond. That yield on Monday hit the highest level since December, as investors flooded the stock market and pulled out of the bond markets. The runup on stocks is backed by a belief that the Trump administration will be a boon to the economy overall and the banking sector specifically.
Higher mortgage rates, however, will throw a wrench into an already shaky housing recovery. Home prices have been rising dramatically in the past few months, largely due to a lack of homes for sale. During housing's recovery from the worst crash in history, historically low mortgage rates allowed prices to gain quickly and, more recently, to rise far faster than both income and employment growth.
Economists at the Mortgage Bankers Association are now predicting that rates will, "trend higher than we had previously forecast, which will more quickly decrease refis." They still predict a strong home purchase loan market, but they say they will have to "assess the impact of policies as they are rolled out with respect to overall growth and housing market implications."