Video update: June 2022

The average 30-year fixed rate mortgage (FRM) rate increased to 5.22% in the week ending August 12, 2022. The average 15-year FRM rate also increased this week, to 4.59%.

Today’s phase of mortgage rates is part of a historical long-term cyclical 30-year rise in FRM rates which began in 2013. FRM rates were distorted by the Pandemic Economy of the 2020-2021 period, as they will be by future recessions.

Prior to the pandemic period, the average 30-year FRM rate had risen to just under 4.0% by January 2020. Today’s rate of 5.22% means purchasing power — which sets property values — has been further reduced for buyers dependent on mortgage funds to purchase property.

Fundamentally, the setting of FRM rates is tied to the bond market, as are capitalization rates. 30-year FRM rates move in tandem with the 10-year Treasury Note (T-Note) rate. Historically, the risk premium spread between the 10-yr T-Note rate and the 30-yr FRM rate is 1.5%.

The 10-yr T-Note rate is 2.85% as of August 12, 2022. However, the spread between the 10-year T-Note and 30-year FRM rate is 2.37%, a significantly higher risk premium than the historical rate spread of 1.5%. Today’s high spread indicates lenders are padding their risk premiums in anticipation of future rate increases — and foreclosures due to defaults.

The average monthly rate on adjustable rate mortgages (ARMs) decreased slightly in July 2022, averaging 4.29%. Still, interest rates on both 15- and 30-year FRM rates are currently higher than the average ARM rate which will not be the case in August 2022. This inversion currently makes these riskier ARM products more appealing to buyers who seek to increase their borrowing capacity for closing funds.

However, ARMs will not continue to beat out FRMs in August 2022. As the Fed’s benchmark rate continues to rise, this movement directly impacts ARM indices. Thus, when the Fed raises rates, ARM rates rise an equal amount.

Today’s homebuyers using ARM funding will need a major boost in personal income to make the new, higher mortgage payments — or else plan to sell — when the initial teaser rate period ends, and rates and payment schedules are reset. Thus, today’s increased ARM use adds a degree of instability to the housing market within five years.

As a further housing disruption going forward, as of May 2022, California is missing 232,000 jobs from the December 2019 pre-recession peak. As the events driven by the Pandemic Economy have now been collectively reversed and as 2022’s undeclared recession sets in, expect to see much further downward pressure on home sales volume — and by end of 2022, on prices. Expect prices to bottom and a recovery to be underway around 2026-2027.

Updated August 12, 2022. Original copy released March 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 08/12/22
2. 30-year FRM rate, monthly — Chart update 08/05/22
3. 15-year FRM rate — Chart update 08/12/22
4. 5/1 adjustable rate mortgage (ARM) rate — Chart update 08/12/22
5. 10-year Treasury note rate — Chart update 08/12/22
6. Combined FRM and 10-year Treasury note rates — Chart update 07/29/22
7. 91-day Treasury bill rate — Chart update 08/05/22
8. 3-month Treasury bill — Chart update 08/05/22
9. 6-month Treasury bill — Chart update 08/05/22
10. Treasury Securities average yield — Chart update 08/05/22
11. 12-month Treasury average — Chart update 08/05/22
12. London Inter-Bank Offered rate (LIBOR) — Chart update 08/12/22
13. Secured Overnight Financing Rate (SOFR) — Chart update 08/12/22
14. Applicable federal rates — Chart update 07/15/22
Chart update 08/12/22

Current
08/12/22
5.22%
Month ago
07/15/22
5.51%
Year ago
08/13/21
2.87%
The average 30-year FRM rate in California is provided by Bankrate.com.
More information:
California Mortgage Rates by Bankrate.com 

Chart update 07/29/22
July 2022
Average
5.47%
June 2022
Average
5.63%
July 2021
Average
2.84%
 
 

Chart update 08/12/22
Current
08/12/22
4.59%
Month ago
07/15/22
4.67%
Year ago
08/13/21
2.15%
The average 15-year FRM rate in California is provided by Bankrate.com.
More information:
California Mortgage Rates by Bankrate.com 
 

Chart update 08/05/22
July 2022
4.30%
June 2022
4.34%
July 2021
2.48%
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.
Chart update 08/12/22
Current
08/12/22
2.85%
Month ago
07/13/22
2.93%
Year ago
08/13/21
1.32%
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.
 
 

Chart update 07/29/22
Avg 15-Year
July 2021
4.66%
Avg 30-Year
July 2021
5.47%
Avg 10-Year T-Note
July 2021
2.90%
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/California 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.
More information:
Freddie Mac’s Primary Mortgage Market Survey report
California Mortgage Rates by Bankrate.com 
10-year Treasury Rate from the Federal Reserve
Chart update 08/05/22
Current
08/05/22
2.54%
Month Ago
07/07/22
1.89%
Year Ago
08/04/21
0.05%
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.
Chart update 08/05/22
July 2022
2.23%
June 2022
1.49%
July 2021
0.04%
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.
Related article: Using the yield spread to forecast recessions
Chart update 08/05/22
 June 2022
2.76%
June 2022
2.11%
July 2021
0.05%

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.
Chart update 08/05/22
July 2022
3.02%
June 2022
2.65%
July 2021
0.08%
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.
Chart update 08/05/22
July 2022
1.104%
June 2022
0.859%
July 2021
0.093%
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.
Chart update 08/12/22
08/12/22
2.28%
07/14/21
1.53%
08/13/21
0.05%
This index is one of several indices used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. It is taking over the LIBOR in 2021, which was found to be manipulated in the years leading up to the 2008 recession and financial crisis. The ARM interest rate equals the SOFR rate plus the lender’s profit margin. The rate is based on overnight borrowing in the U.S. Treasury repo market. The SOFR is produced in a transparent manner and is based on observable transactions, rather than models, and, unlike the LIBOR, is not dependent on bank estimates.
Chart update 08/12/22
1-Month
2.38%
6-Month
3.55%
1-Year
3.99%
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.
Chart update 07/15/22
Short (3 years or less)
July 2022
2.16%
Medium (3 to 9 years)
July 2022
2.37%
Long (9+ years)
July 2022
2.51%
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, reported for the coming month.
More information: Internal Revenue Service Applicable Federal Rates page