US Mortgage Rates Fall for the First Time in Seven Weeks Albeit Modestly

In the week ending October 6, mortgage rates declined for the first time in seven weeks. 30-year fixed mortgage rates slipped by four basis points to 6.66%. In the week prior, 30-year fixed rates had jumped by 41 basis points to 6.70%

Despite the decline, rates are up 167 basis points from the August 3 most recent low of 4.99%. Year-over-year, 30-year fixed rates were up by 367 basis points.

Economic Data from the Week

It was a relatively busy week on the economic calendar, with private sector PMI and US labor market numbers in focus.

Weak manufacturing sector PMI numbers at the start of the week led to a slide in US Treasury yields. In September, the ISM Manufacturing PMI fell from 52.8 to 50.9. While the sector continued to expand, the employment and new order sub-components eased bets of another 75-basis point Fed rate hike.

The Employment Index fell from 54.2 to 48.7, with the New Orders Index sliding from 51.3 to 47.1.

However, the all-important ISM Non-Manufacturing PMI and ADP nonfarm numbers delivered a shift in sentiment and raised bets of a 75-basis point Fed rate hike in November.

According to the ADP, nonfarm employment increased by 208k in September, up from 185k in August. In September, the ISM Non-Manufacturing PMI slipped from 56.9 to 56.7. Notably, the ISM Non-Manufacturing Employment sub-index increased from 50.2 to 53.0, with new orders rising at a solid clip.

The stats preceded the US jobs report on Friday that could also dictate the Fed’s December move.

Freddie Mac Rates

The weekly average rates for new mortgages, as of October 6, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates decreased by four basis points to 6.66%. This time last year, rates stood at 2.99%. The average fee fell from 0.9 points to 0.8 points.

• 15-year fixed rates fell by six basis points to 5.90%. Rates were up by 367 basis points from 2.23% a year ago. The average fee decreased from 1.3 to 1.0 points.

• 5-year fixed rates rose by six basis points to 5.36%. Rates were up by 284 basis points from 2.52% a year ago. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac,

• Mortgage rates fell due to ongoing economic uncertainty.
• Despite the decline, rates remained high compared with one year ago, meaning housing continues to be more expensive for potential home buyers.

Mortgage Bankers’ Association Rates

For the week ending September 30, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 6.52% to 6.75%. Points fell from 1.15 to 0.95 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 6.17% to 6.60%. Points increased from 1.31 to 1.51 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 6.01% to 6.14%. Points rose from 0.70 to 0.79 (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 14.0% in the week ending September 30. The Index fell by 3.7% in the week prior.

The Refinance Index tumbled by 18% and was 86% lower than the same week one year ago. In the previous week, the Index slid by 11%.

The refinance share of mortgage activity declined from 30.2% to 29.0%. In the week prior, the refinance share decreased from 32.5% to 30.2%.

According to the MBA,

• Mortgage rates continue to climb, leading to another slide in overall application activity, which fell to its lowest level since 2006.
• The current rate has more than doubled over the last year and has surged by 130 basis points in the last seven weeks alone.
• The sharp rise has halted refinance activity while also impacting purchase applications.
• Applications in Florida tumbled by 31% compared to an overall 14% fall, weighed by Hurricane Ian.

For the week ahead

It is a quieter week ahead. US inflation will be the market focal point. A pickup in inflationary pressure, following the jobs report, would drive expectations of a 75-basis point Fed rate hike in December.

The latest jobs report has pushed up bets of 75-basis point rate hikes in November and December. Increasing bets of a more hawkish December move will also put greater emphasis on the FOMC meeting minutes on Wednesday.

While market sentiment towards the Fed remains the key driver, chatter from the International Monetary Fund (IMF) World Bank Group meetings will also draw attention. The World Bank and the IMF have issued warnings over central banks tightening monetary policy in a synchronized manner.