U.S. mortgage rates continue their two-year decline

US mortgage rates continue their two-year decline. Last week's decision by the Fed not to hike Fed funds pushed 15Y fixed mortgage rates down by another 5 basis points to 2.92%, where they sat back in early-2013, just before Bernanke started talking about tapering QE3. The 'taper tantrums' that followed pushed mortgage rates up by 100 basis points and the housing recovery, which had been the poster child for the recovery more broadly, stopped dead in its tracks. Housing starts took a sharp turn to the right and ran sideways for two years. 

New home sales did the same. Existing home sales took a sharp turn south (and still aren't back to 2013 levels). In the 18 months between May13 and Jan15, mortgage applications handed back 100% of the gains they had cobbled together over the previous two years. But - and in sharp contrast to market expectations - interest rates didn't keep moving higher in 2014 and 2015 when tapering had run its course. Instead, rates headed back from whence they came - lower and lower and lower. At 2.92%, today's 15Y mortgage rate is nearly back to early-2013 levels, when it averaged 2.85%.

And housing looks so much the better for it. Since the start of 2015, new home sales have been growing again, housing starts have been growing again, and mortgage applications - the start of all things - have made a very strong rebound. 

The message isn't lost on the Fed. At the FOMC press conference last week, Yellen referred to housing markets that are still 'very depressed'. All it took to send to send housing into a 2-year funk was a taper tantrum and a one percent rise in mortgage rates. A one percent rise in policy rates could bring the same effect, just as housing is emerging from that funk. The Fed referred to international risks in the FOMC statement. Domestic risks probably loom larger.