The average rate on a 30-year fixed mortgage jumped above 7%
Of course, mortgage rates are supposed to rise as the Federal Reserve hikes benchmark interest rates. That’s how tighter monetary policy works — by making the cost of credit more expensive.
But the average borrowing cost on a 30-year fixed-rate mortgage now far exceeds the yield on equivalent US Treasuries, with the difference between the two at the highest level on record.
It’s not because people are afraid house prices are going to go down
People might refinance their home loans during periods of low interest rates, or simply move and sell their house.
In times of low rates, MBS investors who get their loan principal paid back early have to reinvest that money at potentially lower yields. But the transition from low rates to higher ones means that suddenly investors are left with longer-term assets, as borrowers hold onto the lower mortgage rates they locked-in previously.
In times of higher interest rates, early repayments disappear and investors don’t have as much money to invest at higher yields.
Tracy Alloway and Joe Weisenthal Bloomberg 27 oktober 2022
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