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U.S Mortgages Rates: Up for a 7th Week in a Row

By:
Bob Mason
Updated: Feb 25, 2018, 08:50 UTC

The FED gets more hawkish, yields hit fresh 4-year highs and mortgage rates rise again, weighing on applications as more prospective home buyers get pushed out of the market.

mortgage rates

The markets had another week of volatility, which needed a Friday rally in the Dow Jones, S&P500, and NASDAQ to end the week in positive territory.

While we saw the equity market fear of yields subside in the previous week rally, this was not the case last week and the release of the FED’s monetary policy meeting minutes from the January FOMC meeting certainly caused a stir.

From the minutes it was clear that members of the FOMC had upwardly revised their economic projections when considering economic indicators going into the end of January meeting, whilst also factoring in the Tax Reform Bill that hadn’t been considered in the December projections.

Coupling the minutes with January’s wage growth and inflation figures, the general sense is that the FED may need to lift rates on at least four occasions this year, the first expected to be in next month’s policy meeting.

The Dow reversed a more than 300 point gain to end the day down 166 points following the release of the minutes, with the 10-year Treasury yield jumping to a fresh 4-week high 2.95% on Wednesday to hit mortgage rates, before yields eased back to 2.87% by Friday’s close.

It’s all about interest rates and inflation and mortgage rates are at the mercy of both.

Freddie Mac rates for new mortgages last week were quoted to be:

  • 30-year fixed rate loan rose to from 4.38% to 4.40% last week and up from 4.16% a year ago.
  • 15-year fixed rates rising from 3.84% to 3.85% and from 3.37% from a year ago.
  • 5-year fixed rates stand at 3.65%, up from the previous week’s 3.63% and 3.16% a year ago.

Refinancing rates are currently as follows:

  • 30-year fixed to refinance rates slipped from 4.32% to 4.32%,
  • 15-year fixed to refinance rates rose from 3.70% to 3.73%.
  • 10-year fixed to refinance rates were unchanged at 3.65%.

The moves in the refinancing rates may provide prospective home buyers with some hope, in that 30-year fixed to refinance rates slipped, but when considering the key drivers to 10-year treasury yields, which ultimately impact mortgage rates and borrowing costs in general, current levels with an upward bias are likely to persist through March.

For those who have delayed buying a new home, more delay could well mean more pain, with 30-year fixed rates now at the highest level since April of 2014.

The unknown, for now, is how aggressively the FED has upwardly revised its economic projections. The March 20-21st FOMC meeting, which will conclude with the release of the FOMC’s 1st quarter economic projections will be key to the direction of mortgage rates through the Spring.

Between now and the next FOMC, February wage growth and inflation figures will also need to be considered. With consumer confidence at such high levels, the tax reform bill and a further tightening in the labor market that has finally led to some more meaningful growth in wages, there’s certainly good cause for the FED to take a more optimistic outlook. Such a view may well see some of the more hawkish members of the FED pencil in a 5th hike this year. 10-year yields could move through to 3% levels and, as home buyers are discovering, that’s not going to be a favorable outcome.

While we tend to focus on mortgage rates, it’s worth considering the impact of rising interest rates on borrowing costs in general.

Consumers have enjoyed a record low-interest rate environment for some time and this has contributed to rising debt, whether by way of leverage in the financial markets, bank loans or credit card outstandings. As the U.S begins to enter into a possibly more aggressive period of monetary policy normalization, offsetting the effects of rising mortgage rates, by reducing debt elsewhere would be a prudent move.

Looking ahead to next week and key data out of the U.S that can further impact mortgage rates and sentiment towards FED monetary policy:

U.S Consumer Confidence, Core Durable Goods, 2nd Estimate, 4th quarter GDP, Core PCE Price Index Personal Spending and Wage Growth will be there for the markets to consider.

The Core PCE Price Index is the FED’s preferred measure for inflation, so any move towards 2% and the chances of a 5th rate hike this year rises and borrowing costs with it.

Wage growth figures will be released after Freddie Mac releases the coming week’s fixed rates, but there’s plenty of data ahead of Thursday’s close to influencing yields.

Outside of the data, FED Chair Jerome Powell will give his first testimony to the Senate since taking over from Yellen at the start of the month. This will also be of influence, with Powell likely to face some tough questions on policy, having just stepped into the most powerful central bank post in the world.

Onwards and upwards, but we may see mortgage rates begin to steady, with 30-year fixed having surged the last week of December’s 3.99%.

Unsurprisingly, mortgage applications nosedived in response to the persistent rise in rates, with the Mortgage Bankers Association reporting a 6.6% week-on-week fall in applications in the week of 12th February.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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