Mortgage rate spike throws a wrench into housing market

The jump in borrowing costs in response to President-elect Donald Trump's pro-growth agenda is causing some heartburn in America's housing industry in some parts of the country.

San Diego mortgage broker Shanne Sleder said a third of his clients, many of whom already were stretching budgets to buy homes in pricey southern California, are having to reconsider what they can afford as rates soar.

'With a number of the people we were in the middle of pre-approving, as rates are going up, it's getting tighter and tighter qualifying them,” Sleder said. He's urging them to lock in rates. 'In some cases, the higher rates are making it so they are not as comfortable with the payment.”

With investors anticipating faster expansion and inflation from Trump's policies, the yield on the U.S. 10-year note - a bellwether of changes in mortgage rates - has jumped more than 35 basis points since the Nov. 8 presidential election, the biggest three-day increase since 2009.

Home loans may be beginning to follow suit: The average 30-year mortgage rate rose to 3.73 percent Wednesday of last week, from 3.69 percent the week before, according to Bankrate.com, whose chief financial analyst Greg McBride sees the rate climbing to near 4 percent this week.

A sustained surge in borrowing costs could further hinder first-time purchases at a time when rising values are already hurting affordability and pricing out buyers in many markets. What's more, the backup in rates would leave the economy wanting of a boost from residential construction that's failed to contribute to growth for two consecutive quarters.

Larry Seay, who retired in March as chief financial officer of builder Meritage Homes Corp., said rising rates also will limit the ability of developers to raise prices, pinching margins. Buyers will look for smaller, cheaper homes and builders probably will look for opportunities to accommodate them, he said.

'It's going to be incumbent on builders to manage cost better because they won't be able to pass on the cost increases with higher home prices,” Seay said.