US Mortgage Rates Fall for a Fourth Week on Fed Chair Powell Guidance

In the week ending February 2, mortgage rates fell for the fourth time in six weeks and the tenth time in twelve weeks. 30-year fixed mortgage rates decreased by four basis points to 6.09%.

Following the latest decline, 30-year fixed rates are up 110 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 254 basis points year-over-year.

Economic Data from the Week

US economic indicators supported a less hawkish Fed ahead of the Wednesday interest rate decision and Fed Chair Powell press conference.

From the Friday prior, inflation softened further, with the Core PCE Price Index up 5.0% year-over-year versus 5.5% in November. Consumer confidence also weakened in January, reflecting the effects of Fed monetary policy on spending and sentiment. In December, personal spending declined by 0.2%, aligned with recent retail sales figures.

Economic indicators on Wednesday also supported a more cautious Fed, with the ADP reporting a 106k increase in nonfarm payrolls, down from 253k in December.

However, the Fed Press Conference was the main event, which weighed on mortgage rates.

While the Fed lifted rates by 25 basis points, in line with expectations, the Fed Chair Powell press conference drove demand for riskier assets and a slump in the dollar.

Powell stated that the Fed could deliver a few more rate hikes to bring inflation to target while acknowledging that the disinflationary process has started. The Fed Chair also said that the Fed Funds Rate could stay below 5% and deliver the inflation target without a ‘significant downturn, or a really significant increase in unemployment.’

However, following the Fed policy decision and press conference, US economic indicators muddied the policy waters. A hot US Jobs Report and a rebound in service sector activity could give the Fed hawks the upper hand in March.

Freddie Mac US Mortgage Rates

The weekly average rates for new mortgages, as of February 2, 2023, were quoted by Freddie Mac to be:

• 30-year fixed rates fell by four basis points to 6.09%. This time last year, rates stood at 3.55%.
• 15-year fixed rates declined by three basis points to 5.14%. Rates were up by 237 basis points from 2.77% a year ago.

According to Freddie Mac,

• Mortgage rates fell further, with the 30-year fixed rate close to a point below the November peak of 7.08%.
• The full-point decline gives three million more mortgage-ready homebuyers the ability to qualify for a $400,000 loan.

Mortgage Bankers’ Association Rates

For the week ending January 27, 2023, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 6.20% to 6.19%. Points fell from 0.69 to 0.65 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA decreased from 6.22% to 6.18%. Points declined from 1.10 to 0.99 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 5.92% to 5.99%. Points rose from 0.41 to 0.48 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, a measure of mortgage loan application volume, slid by 9.0%. The Index rose by 7.0% in the previous week.

The Refinance Index declined by 7% and was 80% lower than the same week one year ago. In the previous week, the Index increased by 15%.

The refinance share of mortgage activity decreased from 31.9% to 31.2%. In the previous week, the refinance share increased from 31.2% to 31.9%.

According to the MBA,

• Mortgage rates fell for the fourth consecutive week and are down by nearly 40 basis points over the last month.
• Treasury yields were higher while mortgage rates declined, leading to a narrowing in the spread between yields and mortgage rates.
• A further narrowing of the spread is likely to put further downward pressure on mortgage rates over the near term.
• However, overall activity declined despite the decline in mortgage rates, though the MBA expects purchase activity to improve as the spring homebuyer season kicks off, supported by lower rates and a slower pace of house price growth.

For the week ahead

It is a quiet week ahead on the economic calendar. There are no material stats for investors to consider through to Wednesday. The lack of stats will leave Friday’s nonfarm payrolls and ISM Non-Manufacturing PMI numbers to guide yields and mortgage rates.

However, Fed Chair Powell and FOMC member chatter will influence. Fed Chair Powell will speak on Wednesday. Following the latest US Jobs Report, hawkish commentary could nudge mortgage rates higher.