Mortgage Rates Accelerate Last Week and More Pain is on the Way

Last week, 30-year fixed mortgages rates increased by 0.07% to 4.27%, while 15-year fixed mortgage rates increased by 0.09% to 3.71%. Mortgage applications surged 4.5% week-on-week, with refinancing up by 1%.

Homeowners and those looking to get on the ladder have already seen valuable pennies disappear and last week was no different.

There may be hopes of wage growth beginning to accelerate to offset the recent increase, but the reality remains that, while labor market conditions continue to tighten until there are strong indications of a pickup in the annual rate of inflation, wage growth will remain soft.

What does that mean for prospective buyers and those looking to refinance their mortgages?

It ultimately boils down to getting the best deal possible before rates become a runaway train.

Last week was a relatively tame one from a Dollar perspective and, even with 4^th quarter GDP numbers falling short of the magic 3.0% and the Mnuchin – Trump show confusing the markets, mortgage rates responded the only way they know how and that’s up.

Of great significance this week is the FOMC monetary policy decision and FOMC statement, with the markets relatively unsure of how Yellen will end her reign and how Powell will take over, a March rate hike certainly on the cards for the incoming FED Chair.

December Core PCE Price Index figures were in line with forecasts, with yields on the bounce at the start of the week, suggesting that rates are likely to pick up again this week.

Last week, not only did mortgage rates hit levels not seen for almost a year, but mortgage applications also joined rising rates and that really is a sign of what’s homeowners and mortgage advisers believe to be on the horizon. Slow and steady is certainly better than fast and furious for homeowners and, while those looking to get on the ladder may be less sensitive to the weekly increases in mortgage rates, the shift in mortgage rates is starting to be one that can’t be ignored.

FED economic projections pointed to 3 rate hikes this year and, while few expect the FED to take the opportunity to shift its stance on policy to a more aggressive rate path, the fact that inflation continues to sit well below the 2% objective has failed to ease the pressure. How the FED assesses the impact of the tax reform bill on the economy and personal finances will also be relevant this week.

The Good news, for now, is that the latest weekly increase has a negligible Dollar impact, which supports the current relationship between applications and rates. How long the trend continues for remains to be seen however and, with yields continuing to rise, there’s little to hold mortgage rates back from moving towards a forecasted 4.6% mortgage rate for the year within the next few weeks, if not sooner.

Yields have been moving so quickly that there are reports of 30-year fixed mortgage rates being offered at 4.5% this week, rising from last week’s 4.28%.

With home prices on the rise, supply continues to be tight and mortgage rates accelerating, things are beginning to look precarious. To make matters worse, according to government figures released on Monday, the U.S savings rate fell to 2.4%, which was the lowest since 2005.