US Mortgage Rates Hit 7% for the First Time Since 2002 to Test the Fed

In the week ending October 27, mortgage rates increased for the ninth time in ten weeks. 30-year fixed mortgage rates rose by 14 basis points to 7.08%. In the week prior, 30-year fixed rates increased by two basis points to 6.94%.

Following the latest increase, rates are up 209 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 394 basis points year-over-year to strike a new 2022 peak.

Economic Data from the Week

It was a busy week on the economic calendar, with private sector PMI and consumer confidence figures drawing interest early in the week.

A more marked contraction across the private sector and a slide in consumer confidence failed to pull mortgage rates down. A slower house price growth rate also had no impact, with the upward trend in interest rates continuing to push mortgage rates higher.

While hopes of a December Fed pivot delivered support to riskier assets, the Fed is unlikely to reverse rates in the New Year, supporting mortgage rates at current levels.

Freddie Mac Rates

The weekly average rates for new mortgages, as of October 27, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates increased by 14 basis points to 7.08%. This time last year, rates stood at 3.14%. The average fee decreased from 0.9 points to 0.8 points.

• 15-year fixed rates rose by 13 basis points to 6.36%. Rates were up by 399 basis points from 2.37% a year ago. The average fee increased from 1.1 points to 1.4 points.

• 5-year fixed rates jumped by 25 basis points to 5.96%. Rates were up by 340 basis points from 2.56% a year ago. The average fee fell from 0.4 points to 0.3 points.

According to Freddie Mac,

• 30-year fixed mortgage rates breached seven percent for the first time since April 2002.
• The surge in mortgage rates has led to greater stagnation in the housing market.
• As inflation lingers, consumers face higher costs, leading to declines in consumer confidence.
• Potential homebuyers are opting to wait and see where the housing market will end up, weighing more heavily on demand and home prices.

Mortgage Bankers’ Association Rates

For the week ending October 21, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 6.94% to 7.16%. Points fell from 0.95 to 0.88 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 6.63% to 6.79%. Points decreased from 1.60 to 1.59 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 6.31% to 6.53%. Points rose from 0.67 to 0.68 (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 1.7% in the week ending October 21. The Index slid by 4.5% in the week prior.

The Refinance Index increased by 0.1% and was 86% lower than the same week one year ago. In the previous week, the Index declined by 7.0%.

The refinance share of mortgage activity increased from 28.3% to 28.8%. In the previous week, the share decreased from 29.0% to 28.3%.

According to the MBA,

• Mortgage rates increased for the tenth consecutive week, with the 30-year fixed rate hitting the highest level since 2001.
• The upward trend in mortgage rates continues to weigh on mortgage application activity, which remained at its slowest pace since 1997.
• Refinance applications were unchanged, while purchase applications fell to the slowest pace since 2015.
• MBA forecast expects economic and housing market weakness in 2023 to drive a three percent decline in purchase originations.

For the week ahead

ISM Manufacturing PMI and JOLTs job openings will draw plenty of interest on Tuesday ahead of ADP nonfarm employment numbers on Wednesday.

However, the FOMC interest rate decision and rate statement will have more influence ahead of the FOMC press conference. Assuming the Fed delivers a 75-basis point rate hike, the market focus will be on Fed Chair Powell.

Talk of another hawkish move in December would nudge mortgage rates higher. However, homebuyers could get some mortgage rate relief should Powell suggest the need to take the foot off the gas.