Holy Moly mortgage rates are approaching 7%.
By Wolf Richter for WOLF STREET.
Earning 4% without taking any credit risk would sound like a lot in normal times. But these are not normal times and inflation is more than doubling. The Fed has withdrawn from the Treasury and Mortgage-Backed Securities markets as part of its QT, raising short-term interest rates to over 3%. Treasury yields are now 4% or more for maturities from one year to five years.
And banks now have to compete and are now offering “brokered” CDs at rates in excess of 4% with maturities ranging from six months to five years. When income investors and savers take advantage of these rates, their money is being wiped out by inflation at half the rate it would be in their regular bank accounts. But if you have to borrow money to buy a house, for example, it’s getting a lot more expensive now.
Government bonds: maturities of 1 to 5 years at 4% or more.
The 6-month Treasury yield today is up 3.9% right now, the highest since November 2007, up from nearly 0% less than a year ago:
The 1-year Treasury yield is currently up 4.14%, its highest level since November 2007, from nearly 0% less than a year ago:
The 2-year Treasury yield is currently up 4.21%, the highest since September 2007, and up from 0.25% a year ago.
The two-year yield started rising around this time last year as it began pricing in the Fed’s pivot. By the end of 2021, it had risen to 0.73 when Fed interest rates were still close to 0%. But the Fed had already started to “taper” its asset purchases and was talking about raising interest rates in the future.
The 5-year Treasury yield currently up to 4.0%, just so far:
Banks are now competing with government bonds for deposits:
Buying government bonds is now easy. People can buy them through their broker in the secondary market or sometimes at auction. And people who open an account with Treasurydirect.gov can buy them directly at auction from the government.
And the yields offered by government bonds with maturities up to five years are what banks have to compete with if they want to attract new money.
Banks have found that their customers move money from their bank accounts into Treasury money market funds and Treasury funds because they get almost 0% at the bank, and they get about 2% in a Treasury money market fund and 4.14% in one-year Treasury bonds .
So banks are starting to compete for deposits. And they do it with “brokered” CDs, which are FDIC-insured CDs that banks don’t offer to their existing customers (they still get close to 0%) but offer to new customers through broker accounts where these CDs can be bought like stocks.
Banks offer these CDs through brokers and not to their own customers because they don’t want to pay all of their existing customers 4% interest on their deposits, only 4% on the new money they attract while they want to pay theirs loyal customers is still almost 0%.
For banks, brokered CDs are a form of “hot money” that comes and goes, unlike regular bank deposits, which tend to be stickier.
So I asked my agent today. And they offer that in the form of mediated CDs. These are the highest bank rates I’ve seen since 2008:
- 6-month CD: 4.04%
- 9-month CD: 4.12%
- 1-year CD: 4.05%
- 2-year CD: 4.20%
- 5-year CD: 4.30%
Some CDs are “callable” and may offer a higher interest rate, but with the risk of being “callable” if interest rates fall. It’s good to check so there are no surprises.
Holy Moly mortgage rates are approaching 7%.
The average interest rate on 30-year fixed-rate mortgages rose to 6.70% today, according to a daily measurement by Mortgage News Daily. This is the most direct measurement we have of the mortgage market.
Freddie Mac’s weekly metric, released Thursday and based on mortgage rates earlier in the week, rose to 6.29%, the highest since November 2008.
But Freddie Mac’s weekly average was based on mortgage rates in effect before Wednesday afternoon – before the Fed announced a 75 basis point rate hike and forecasts of another 125 basis point rate hike this year, which could bring its near-term policy to around by the end of 2022 4.4%.
For people who took out mortgages in the 1980s and early 1990s, an interest rate of around 6.7% might still seem pretty low or incredibly low given inflation above 8%, but house prices are now in the doldrums Ionosphere and have been inflated for years by the Fed’s rate cut and QE, including the Fed’s purchases of mortgage-backed securities. And financing a home at these ionospheric rates of 6.7% today is a very different matter than financing a home in the 1990’s at that kind of interest rate.
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