Mortgage Rates Up for a 5th Consecutive Week

It was a tough week for the U.S last week, the Dow Jones saw two 1,000 point drops in the same week, which has never happened in the Dow’s history, not even during the Great Depression or the Global Financial Crisis.

While trillions of Dollars were wiped out in just a matter of days, mortgage rates continued to rise, with U.S mortgage rates rising for a 5^th consecutive week.

A week of records, but not the type of records that save a few pennies, with mortgage rates climbing to December 2016 highs in the week.

The increase in mortgage rates was across the board. For refinance mortgages, the 30-year fixed climbed 6 basis points to 4.3%, while the 15-year and 10-year fixed rates saw larger increases in the week, the 15-year fixed rate climbing 10 basis points to 3.62%, with the 10-year fixed up 8 basis points to 3.56%.

An increase to the government debt ceiling and an expected jump in bond issuances hit yields, with a Wednesday auction seeing weak demand raising concerns over the success of future issuances.

With inflationary pressures building and the markets continuing to pencil in a 4^th rate hike for the year, 10-year Treasury yields hit a 4-year high 2.88% on Monday, before closing the week at 2.85%.

As mortgage rates continue to rise, more and more prospective home buyers will be priced out of the market, while others will need to re-evaluate finances and target properties, with the pickup in wage growth and savings from the tax reform bill unlikely to be enough for some.

FOMC members attempted to downplay the market expectations that wage growth will quickly translate into an acceleration in the annual rate of inflation, but the markets were largely uninterested in the chatter.

While supply issues have provided strong support to the real estate sector and will likely to continue to do so near-term, homeowners looking to refinance before mortgage rates hit the roof, not to mention those looking to get on the ladder, will need to consider the reality that property prices are not going to keep rising and at some point the supply-demand balance will reverse.

A tumble in the equity markets will have certainly impacted buyer appetite and with rates on the rise, there’s another reason for the real estate sector to be a little edgy mid-way through the 1^st quarter.

For new mortgages, Freddie Mac reported on Thursday that the average 30-year fixed-rate mortgage rate stood at 4.32% for the week ending 8^th February, rising 10 basis points from the previous week’s 4.22%. It’s been a rapid rise, with rates having climbed 0.33% through the first 6-weeks of the year.

The good news for many will be the fact that mortgage rates are just 0.15% up from the same time last year, supporting application demand, with mortgage applications 8% higher than a year ago, while the number of applications held steady week-on-week, in spite of the jump in mortgage rates.

In the coming weeks, the key will likely be how quickly a pickup in wage growth translates into inflation and ultimately leaves the FED with little choice but to project a more accelerated rate path for this year. There is some time, with the next set of FOMC economic projections not due for release until 21^st March, but by then the writing could be on the wall, with the yields likely to pre-empt what’s to come.

On the delinquency rates, 30-day delinquency rates for all mortgages had been on the decline through the final quarter of last year, while 60-day and 90-day delinquencies were on the rise, though still lower than in 2016. How delinquency rates move through the 1^st quarter will also be of influence and with FHA mortgage delinquency rates higher year-on-year in the 4^th quarter, there is already evidence of some homeowners being stretched. Rising interest rates and an anticipated fall in household disposable incomes will be factors that may put further pressure on the market and mortgage lending standards, in a rising mortgage rate environment.