The average 30-year fixed rate mortgage (FRM) rate rose to 4.00% during the week ending December 2, 2016. The 15-year FRM rate also increased to 3.17%. Though FRM rates have been a downward trend over the past two years, rates are now on the rise following the recent presidential election.

Much like the “taper tantrum” in 2013 when the Federal Reserve (the Fed) announced it was ending the addition of money to the banking system, the economy is now seeing a “Trump jump” due to post-election investor activity — a trend that will likely result in a slow decline in rates going into the 2017-2018 recessionary period.

Prior to the rate jump, FRM rates remained relatively low due to bond market activity and near-zero short-term borrowing rates set by the the Fed. The Fed raised the short-term rate by 0.25% on December 17, 2015 after seven years at essentially zero. However, the raise had little effect on FRM rates.

The reason: mortgage rates are tied to the bond market and move in tandem with the 10-year Treasury Note (T-Note) rate. Until now, investors have been placing large sums in bonds and on deposit with the Fed for safekeeping while investment opportunities are scarce. These excess funds have kept FRM rates low and steady, preventing further decreases needed to spur mortgage originations and, subsequently, increase home sales volume.

The present “Trump jump” has caused bond market investors to pull back investment funds in the 10-year T-Note. Decreased investment indicates the rate on the 10-year T-Note will now rise over the next several months, FRM rates following in tandem.

As of December 1, 2016, the 10-year T-Note rate is at 2.48%, up from the prior week and the highest it has reached since 2014.

Lenders use the 10-year T-Note to determine a homebuyer’s mortgage rate. The difference between the note rate and the 10-year T-Note rate represents the lender’s risk premium. The premium accounts for potential losses due to mortgage defaults on less than 20% down payment transactions, covered by private mortgage insurance (PMI).

The current spread between the 10-year T-Note and 30-year FRM rate increased to 1.5%, level with the historical difference of 1.5%. However, the long-term trend shows the spread between the two rates has remained elevated throughout 2016, and will likely continue to remain high, indicating higher mortgage rates for homebuyers and refinancers, as well as higher lender profits. These overpriced mortgages – along with the deceleration in home sales volume since October 2015 due to excessive home pricing – are contributing to the reduction in purchase-assist originations and, as a result, the current slowdown in residential construction.

As of November 2016, the average rate on adjustable rate mortgages (ARMs) also rose significantly to 3.29%, above its low point of 2.49% experienced in May 2013. ARM use has gradually risen due to home prices rising faster than the rate of pay, causing buyers to take on more risk to extend their purchasing power. The Fed’s short-term interest rate hike at the end of 2015 caused ARM rates to rise proportionately – around 0.25% – and they will continue to rise with FRM rates.

Expect mortgage rates to now experience upward pressure from related economic factors, such as:

  • a drop in tax revenue due to tax rate reductions and a slowing economy;
  • increased spending on government programs (like infrastructure) that raise demand for capital and attract bond market money;
  • inflationary expectations by the bond market and the Fed due to the flow of investment funds to government programs; and
  • higher interest rates and payments on consumer debt for cars and housing.

 

Updated 12/01/2016. Original copy released 03/13/2012.

Click the link to go directly to a chart, or browse the charts by scrolling below.

1. 30-year fixed rate mortgage (FRM) rate, weekly — Chart update 12/01/16
2. 30-year FRM rate, monthly — Chart update 11/25/16
3. 15-year FRM rate — Chart update 12/01/16
4. 5/1 adjustable rate mortgage (ARM) rate — Chart update 11/25/16
5. 10-year Treasury note rate — Chart update 12/01/16
6. Combined FRM and 10-year Treasury note rates — Chart update 11/04/16
7. 91-day Treasury bill rate — Chart update 12/01/16
8. 3-month Treasury bill — Chart update 10/14/16
9. 6-month Treasury bill — Chart update 10/14/16
10. Treasury Securities average yield — Chart update 10/07/16
11. 12-month Treasury average — Chart update 10/14/16
12. Cost of Funds Index — Chart update 09/30/16
13. London Inter-Bank Offered rate (LIBOR) — Chart update 09/30/16
14. Applicable federal rates — Chart update 12/01/16
15. Private lender section 32 Reg-Z loans — Chart update 10/07/16

Average 30-Year Conventional Commitment Rate

30-year FRM rate, weekly

Chart update 12/01/16

Current
12/01/16
4.00%

Month ago
11/04/16
3.50%
Year ago
12/03/15
3.90%
Beginning January 2016, the average 30-year FRM rate in California is provided by Bankrate.com. Prior to January 2016, the 30-year FRM rate is provided by Freddie Mac’s survey of the Western Region of the U.S, which includes CA, AZ, NV, OR, WA, UT, ID, MT, HI, AK, and GU.

Average 30-Year Conventional Commitment Rate: 1991-present

Chart: 30-yr FRM

Chart update 11/25/16
Nov 2016
Average
3.78%
Oct 2016
Average
3.43%
Nov 2015
Average
3.91%

Average 15-Year Conventional Commitment Rate

15-year FRM rate
Chart update 12/01/16
Current
12/01/16
3.17%
Month ago
11/04/16
2.78%
Year ago
12/03/15
3.11%
Beginning January 2016, the average 15-year FRM rate in California is provided by Bankrate.com. Prior to January 2016, the 15-year FRM rate is provided by Freddie Mac’s survey of the Western Region of the U.S.
More information:

5/1 Adjustable Rate Mortgage (ARM) Average Rate

Chart: ARM avg
Chart update 11/25/16
Nov 2016
3.29%
Oct 2016
3.06%
Nov 2015
2.79%
The 5/1 average adjustable rate mortgage (ARM) rate shows the average rate for the first five years after origination. After the initial five-year period, the ARM rate is adjusted annually based on an index figure, such as a certain Treasury Bill rate (which reflects Federal Reserve rate movements) or the London Inter-Bank Offered Rate (LIBOR). Beginning January 2016, the average ARM rate in California is provided by Bankrate.com. Prior to January 2016, the average ARM rate is provided by Freddie Mac’s survey of the Western Region of the U.S.

10-Year T-Notes – Average Market Yield

10-year T Note
Chart update 12/01/16
Current
12/01/16
2.48%
Month ago
10/28/16
1.78%
Year ago
12/03/15
2.32%
This rate is a leading indicator of the direction of future Freddie Mac rates. The 10-year rate historically runs closer to 4% during a stable money market. The rate is influenced by worldwide demand for the dollar and anticipated future domestic inflation.

Combined Average 15-, 30-Year Conventional Rates and 10-Year Treasury Note Average

Chart: Combo Rates

Chart update 11/04/16
Avg 15-Year
Oct 2016
2.71%
Avg 30-Year
Oct 2016
3.43%
Avg 10-Year T-Note
Oct 2016
1.76%
The average 15- and 30-year conventional commitment rates are the rates at which a lender commits to lend mortgage money in the United States-West for the duration of the life of each respective mortgage as reported by Freddie Mac. The green line reflects the 10-Year Treasury Note Average, a leading indicator of the direction of future Freddie Mac rates. It is comprised of the level of worldwide demand for the dollar and anticipated future domestic inflation.

91-Day Treasury Bill – Average Auction Rate

91-day Treasury Bill

Chart update 12/01/16
Current
12/01/16
0.49%
Month Ago
11/03/16
0.35%
Year Ago
12/03/15
0.22%
This rate determines the minimum interest rate the seller must use in a delayed §1031 transaction and report when not receiving interest on §1031 monies held by a facilitator/accommodator. This rate also sets the amount of the ordinary income the facilitator/accommodator must report.

3-Month Treasury Bill

Chart: 3-month Treasury Bill Rate

Chart update 10/14/16
Sep 2016
0.29%
Aug 2016
0.30%
Sep 2015
0.02%
The 3-Month Treasury Bill is the rate managed by the Federal Reserve through the Fed Funds Rate as the base price of borrowing money in the short-term. It is used in determining the yield spread, which predicts the likelihood of a recession one year forward. The posted rate is the monthly average for the listed month. Rates are released with a 1-2 month reporting delay.

6-Month Treasury Bill

Chart: 6-month Treasury Bill

Chart update 10/14/16
Sep 2016
0.46%
Aug 2016
0.44%
Sep 2015
0.18%

The six-month T-Bill rate is one of several indices used by lenders to periodically adjust the adjustable rate mortgage (ARM) rate. The adjusted rate equals the indexed rate (at the time of adjustment or an average of several prior rates) plus the lender’s profit margin. The posted rate is the monthly average for the listed month. Rates are released with a 1-2 month reporting delay.

Treasury Securities Average Yield — 1-Year Constant Maturity

Chart update 10/07/16
Sep 2016
0.59%
Aug 2016
0.57%
Sep 2015
0.37%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate.The ARM interest rate equals T-Bill yield, plus the lender’s profit margin. The index is an average of T-Bill yields with maturities adjusted to one year.

12-Month Treasury Average

Chart: 12-month Treasury Average

Chart update 10/14/16
Sep 2016
0.54%
Aug 2016
0.52%
Sep 2015
0.24%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. This figure is an average of the one-year T-Bill rates for the past 12 months.The ARM interest rate equals the 12-Month Treasury Average yield plus the lender’s profit margin. There is a one-two month lag in data reporting for the 12-Month Treasury Average.

Cost of Funds Index (COFI) (11th FHLBB District)

Chart update 09/30/16
Aug 2016
0.69%
Jul 2016
0.69%
Aug 2015
0.64%
This index is one of several indexes used by lenders to periodically adjust the interest rate on an ARM note. The ARM interest rate equals Cost of Funds Index, plus the lender’s profit margin. Current index reflects the cost of funds two months’ prior in the United States-West.

London Inter-Bank Offered Rate

Chart update 09/30/16
1 Month
0.53%
6 Month
1.24%
1 Year
1.56%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate.The ARM interest rate equals the LIBOR rate plus the lender’s profit margin. The rate is set by the banks in London, England.

Applicable Federal Rates

Chart: App Fed Rates

Chart update 12/01/16
Short (3 years or less)
Dec 2016
0.55%
Medium (3 to 9 years)
Dec 2016
1.09%
Long (9+ years)
Dec 2016
1.66%
These rates determine minimum interest yield reportable on carryback financing. The AFR category is determined by the carryback due date. *Rates are for monthly payments.

Rate Analysis for Private Lender Section 32 Reg-Z Loans

Data courtesy Federal Reserve

Chart update 10/07/16

Month* 6-Month 1-Year 2-Year 3-Year 5-Year 7-Year
Sep 2016 0.47% 0.59% 0.77% 0.90% 1.18% 1.46%
On junior trust deed loans, a margin of 5 – 8% points is added to the Index Figure (Cost-of-Funds Rate) for the maturity date of a Treasury bill equal in length to the payoff date of the loan to set the Section 32 threshold for term limitations. With this in mind, if the percentage of the total loan amount represented by points and fees is greater than the applicable Federal Securities Rate plus ten percentage points, additional disclosures, limitations and prohibitions are triggered by Regulation Z (Reg-Z) Section 32. [See RPI Form 223-1: Points and Fees Test and Form 223: Supplemental Truth-in-Lending Section 32 Disclosure]
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