Are The Best Days Behind for Mortgage Activity?

US Treasury yields have continued to move higher with mortgage rates rising in tow (we explained some key distinguishing characteristics of mortgages versus Treasuries in last night’s Closer).’s national average for a 30-year fixed rate mortgage has now eclipsed 5.25% in the past week which is an over 2 percentage point increase year over year.  Since the start of this series on mortgage rates going back to the late 1990s, that is by far the largest year-over-year increase on record.

Average mortgage rates

Higher rates mean less attractive affordability so purchase applications have continued to fall per the latest Mortgage Bankers Association data.  Seasonally adjusted purchase applications dropped 3% this week and are hovering just above the February lows.

Mortgage Purchase Index

The spring is often the hottest time of the year for housing activity.  As shown below, the few weeks surrounding the current one have often marked the annual high (blue dots in chart below) in non-seasonally adjusted purchase applications over the past decade.  This year that might not be the case.  Activity has been running below that of the prior year and has plateaued more recently as mortgage rates have taken off. At the moment, this year’s high was set a little over a month ago in the second week of March. While a new high for the year is still within tangible reach from current levels—meaning upcoming weeks could still very well experience an uptick to a new high—this year has the potential to see a much earlier than usual high in mortgage purchases.

MBA Mortgage Purchases

Refinance applications meanwhile are far weaker with unrelenting declines recently.  This week marked the sixth week over week decline in a row leaving the MBA’s refinance index at the lowest level since February 2019.  Click here to learn more about Bespoke’s premium stock market research service.

Mortgage Refinance Index

Treasuries Yields Blow Past Dividend Yields

US Treasury yields have experienced a dramatic move higher as the market prices in continued rate hikes in the near future.  With the increase in long-term Treasury yields, we’re starting to see what looks like the end of a period where the S&P 500 and the 10-year Treasury fought back and forth over which asset class had a more attractive yield.

As shown in the chart below, from 1970 right up to the period before the global financial crisis, the 10-year yield consistently yielded more than the S&P 500.  As the Fed cut rates to zero during the crisis, though, the S&P 500 went on to see multiple periods where its dividend yield was in excess of the 10-year Treasury yield.  With the recent surge in yields as the Fed embarks on what the market expects to be an aggressive rate hiking cycle, the script has been completely flipped.  The 10-year now offers a roughly 125 bps higher yield than the S&P 500 dividend yield which is the widest spread since the fall of 2018 and before that, the fall of 2011. As the spread between the S&P 500 dividend yield and 10-year Treasury yield hits the low end of the GFC/post-GFC era, we would note that current levels are still roughly 200 bps higher than the historical average going back to 1970.   Click here to view Bespoke’s premium membership options.

Dividend Yield vs Treasury Yield