Mortgage Rates and Applications on the Move

15-year and 10-year rates saw more significant increases, with the 15-year rate rising by 0.11 percentage points to 3.38% and the 10-year rising by 0.16 percentage points to 3.38%.

Average interest rates for 30-year fixed mortgages with conforming loan balances rose from 4.23% to 4.33% in the week.

While mortgage rates were on the rise, the number of mortgage applications were also on the rise, with total mortgage application increasing by 4.1%, with applications up 5.6% compared with the same time last year.

The gains were attributed to a 4% surge in refinance mortgage applications, with the increase in mortgage applications defying the week’s increase in mortgage rates.

Inverse correlations between mortgage rate applications and interest rates have been broken going into the New Year and this is likely to be attributed to the stark realization that mortgage rate rises are likely to continue for the foreseeable future.

The government’s inability to extend funding until the 2^nd week of February will have eased upward pressure on mortgage rates at the end of last week but, with the Senate taking a 2^nd vote later today, hopes are that the federal government will receive funding through an extension, which will lead to rates making further moves over the near-term.

Unfortunately for new home buyers, the rise in rates is unlikely to lead to a material increase in supply that could dent the housing market recovery and save a few pennies on the purchase price, to offset any increase in mortgage payments.

With a lack of supply expected to continue to fuel the housing sector, it will take some time before demand begins to ease, with mortgage applications for new home purchases traditionally less sensitive to the weekly moves in mortgage rates and more sensitive to the outlook on mortgage rates and the economy as a whole.

The incentive is certainly there for homeowners in particular, to look to take advantage of current rates, with expectations being for mortgage rates to rise as high as 4.6% this year.

For now, the markets have also under-priced the likely number of rate hikes by the FED this year, with signs of a build-up in inflationary pressure and a positive economic outlook supporting at least 3-rate hikes for the year. Some FOMC voting members have even penciled in 4-hikes, which would certainly place a 4.6% rate on the lower side of forecasts for 2018.

Looking beyond the U.S, positive sentiment towards the global economy, with Europe and Asia performing in sync with the U.S economy, will add further pressure on bonds, with further rises in bond yields another negative for mortgage rates. Added to that is the fake news of China wanting to cut its exposure to U.S Treasuries, which would see bond yields rise further, with the fake news perhaps not as fake as some would suggest.

All things considered, mortgage rates are unlikely to be going into reverse anytime soon, with even a government shutdown unlikely to have a material impact barring a very short-term blip.