US Mortgage Rates Head Towards 6% on Fed Policy Mantra

In the week ending September 1, mortgage rates were on the rise for a second consecutive week. 30-year fixed rates increased by 11 basis points to 5.66%. In the week prior, rates surged by 42 basis points. Following the 11-basis point rise, rates are up 67 basis points from an August 3 low of 4.99%.

Year-on-year, 30-year fixed rates were up by 279 basis points while down 15 basis points since a June 22, 2022, peak of 5.81%.

Economic Data from the Week

Fed Chair Powell’s speech from Jackson Hole in the week prior drove mortgage rates higher in the week. Following Powell’s hawkish speech, FOMC members towed the Fed line, talking of the need to push rates beyond 4% to bring inflation under control.

On the economic data front, stats included JOLTs job openings, consumer confidence, and ADP employment change figures.

The stats were skewed to the positive, supporting the Fed’s monetary policy goals and the upward trend in mortgage rates.

Freddie Mac Rates

The weekly average rates for new mortgages, as of September 1, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates increased by 11 basis points to 5.66%. This time last year, rates stood at 2.87%. The average fee remained unchanged at 0.8 points.

• 15-year fixed rates rose by 13 basis points to 4.98%. Rates were up by 280 basis points from 2.18% a year ago. The average fee remained unchanged at 0.8 points.

• 5-year fixed rates jumped by 15 basis points to 4.51%. Rates were up by 208 basis points from 2.43% a year ago. The average fee held steady at 0.4 points.

According to Freddie Mac,

• Mortgage rates are on the rise, driven by market sentiment towards the Fed’s monetary policy goals to curb inflation.
• The upswing in mortgage rates comes at a precarious time for the housing sector, with lower purchase demand causing a slowdown in the rate of house price appreciation.

Mortgage Bankers’ Association Rates

For the week ending August 26, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 5.65% to 5.80%. Points rose from 0.68 to 0.71 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 5.43% to 5.57%. Points decreased from 1.10 to 1.09 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 5.28% to 5.32%. Points declined from 0.58 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, decreased by 3.7%. The Index declined by 1.2% in the week prior.

The Refinance Index slid by 8% and was 83% lower than the same week one year ago. In the previous week, the Index fell by 3%.

The refinance share of mortgage activity declined from 31.1% to 30.3%. In the week prior, the share fell from 31.2% to 31.1%.

According to the MBA,

• The 30-year fixed mortgage rate increased for a second consecutive week to reach its highest level since mid-July.
• Mortgage and Treasury yields rose last week in response to Fed talk of rates staying higher for longer.
• Application volume declined and remained at a multi-decade low, weighed by an 8% slide in refinance applications.
• Rising inventories and slower home-price growth could draw some buyers back to the market later in the year.

For the week ahead

It is a quiet start to the week, with the US markets closed for Labor Day on Monday. However, ISM Non-Manufacturing PMI figures for August will influence US Treasury yields and mortgage rates on Tuesday. Following the market sensitivity to the ISM Manufacturing PMI and sub-components, the Non-Manufacturing PMI and sub-components will have more influence.

From elsewhere, trade data from China will also provide direction.

However, FOMC member chatter will likely be the key driver in the week. Following Yellen’s comments on the Fed’s obligation to curb inflation, hawkish FOMC member chatter would push mortgage rates back towards the June peak of 5.81% and beyond.