Wells Fargo & Co (WFC) – News Flash: Mortgage Rates Will Head Higher

Page 1 of 2

Only once before in recorded history have mortgage rates been more volatile than they are right now. Want to guess when that was? Try November 2008, a mere two months after the fall of Lehman Brothers triggered the worst financial crisis since the Great Depression.

The following chart illustrates this point. It shows that the rate on a conventional 30-year fixed-rate mortgage has fluctuated an average of 6.38% in each of the past four weeks. And all together, rates have skyrocketed by nearly a third since the beginning of May.

What’s causing the angst?
The source of the volatility is common knowledge at this point — that is, the Federal Reserve. This past week, Fed Chairman Ben Bernanke testified once again to the effect that the central bank could begin moderating its support for the economy, which consists of monthly bond purchases, later this year if growth and employment pick up and inflation remains muted.

Now, to be clear, these are big “ifs.” As Bernanke noted, “because our asset purchases depend on economic and financial developments, they are by no means on a preset course.”

What’s more interesting, in turn, is the impact that the rising rates have had on the mortgage and therefore housing industries. As I’ve discussed before, common sense seems to dictate that a rapid increase in rates would result in a precipitous decline in demand for new mortgages. But we’ve since come to find out that this hypothesis is only partially true.

Wells Fargo & Co (NYSE:WFC)On the one hand, the volume of applications to refinance existing mortgages has indeed gone over a cliff. According to data from the Mortgage Bankers Association, the figure has fallen by 55% over the past 10 weeks alone. And for the three months ended June 30, Wells Fargo & Co (NYSE:WFC), the nation’s largest mortgage originator by far, reported that the proportion of mortgage applications related to refinancing fell from 72% at the end of last year all the way down to 54% today.

On the other hand, and here’s where it gets interesting, we’ve seen little perceptible impact on purchase-money mortgage originations. If anything, in fact, the exact opposite has occurred, as purchase-money volume at both Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) picked up last quarter by 46% and 44%, respectively — by means of context, JPMorgan is the nation’s second largest mortgage originator.

Suffice it to say, this has been a huge relief to homebuilders, who have only recently begun to fully recover from the crisis. D.R. Horton, Inc. (NYSE:DHI) and PulteGroup, Inc. (NYSE:PHM), for instance, the nation’s two largest homebuilders, recently reported year-over-year increases of 33% and 23%, respectively, in quarterly deliveries. It’s no surprise, in turn, that shares of both companies have outperformed the S&P 500 over the past five years.

DHI Total Return Price Chart

DHI Total Return Price data by YCharts

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!