What was the 2013 taper tantrum effect on mortgage rates?

Q: What was the 2013 taper tantrum effect on mortgage rates?

The 30-year fixed mortgage rate rose from 3.35% in early May 2013 to 4.46% by September 2013 — a 111-basis-point rise in four months, the steepest 4-month rise since 1987. The 2013 "taper tantrum" was the bond-market reaction to Federal Reserve Chairman Ben Bernanke's May 22, 2013 testimony before Congress, in which he indicated the Fed would consider tapering its $85 billion-per-month QE3 mortgage-backed-securities purchase program later that year. The market reaction 10-year Treasury yields rose from 1.94% on May 22 to 2.99% by September 5 — a 105-basis-point rise. Mortgage spreads widened, pushing the 30-year fixed PMMS rate from 3.35% (week of May 2) to 4.46% (week of September 5). The housing impact The rate spike collapsed the 2013 refinance wave that had been running since 2012. Refi originations fell from a peak quarterly run rate of $400B+ in Q1 2013 to roughly $100B by Q4 2013. Existing-home sales fell from a 5.39M annualized rate in May 2013 to 4.84M by November — a 10% decline driven entirely by the rate move. The Fed walkback The Fed's response was a careful messaging walkback. By September 2013, the Federal Open Market Committee statement explicitly stated that asset purchases would continue at $85B/month, and tapering would not begin until December 2013 (and only at $10B/month). Rates eased from the September 4.46% peak back to roughly 4.20% by year-end. The lesson for monetary policy The 2013 episode demonstrated that bond markets could move rates faster than the Fed wanted to move them, and that QE communication mattered as much as actual purchases. Subsequent Fed communications (2017 balance-sheet runoff, 2022 quantitative tightening) were carefully staged to avoid a 2013-style market reaction.

Question

Short answer. The 30-year fixed mortgage rate rose from 3.35% in early May 2013 to 4.46% by September 2013 — a 111-basis-point rise in four months, the steepest 4-month rise since 1987.

The 2013 "taper tantrum" was the bond-market reaction to Federal Reserve Chairman Ben Bernanke's May 22, 2013 testimony before Congress, in which he indicated the Fed would consider tapering its $85 billion-per-month QE3 mortgage-backed-securities purchase program later that year.

The market reaction

10-year Treasury yields rose from 1.94% on May 22 to 2.99% by September 5 — a 105-basis-point rise. Mortgage spreads widened, pushing the 30-year fixed PMMS rate from 3.35% (week of May 2) to 4.46% (week of September 5).

The housing impact

The rate spike collapsed the 2013 refinance wave that had been running since 2012. Refi originations fell from a peak quarterly run rate of $400B+ in Q1 2013 to roughly $100B by Q4 2013. Existing-home sales fell from a 5.39M annualized rate in May 2013 to 4.84M by November — a 10% decline driven entirely by the rate move.

The Fed walkback

The Fed's response was a careful messaging walkback. By September 2013, the Federal Open Market Committee statement explicitly stated that asset purchases would continue at $85B/month, and tapering would not begin until December 2013 (and only at $10B/month). Rates eased from the September 4.46% peak back to roughly 4.20% by year-end.

The lesson for monetary policy

The 2013 episode demonstrated that bond markets could move rates faster than the Fed wanted to move them, and that QE communication mattered as much as actual purchases. Subsequent Fed communications (2017 balance-sheet runoff, 2022 quantitative tightening) were carefully staged to avoid a 2013-style market reaction.

Sources

U.S. Census Bureau Survey of Construction; National Association of Realtors Existing Home Sales report; Freddie Mac Primary Mortgage Market Survey; National Bureau of Economic Research Business Cycle Dating Committee.