US Mortgage Rates Jump 42 Basis Points to 5.55% as Activity Wanes

In the week ending August 25, mortgage rates were back on the rise in what is proving to be a choppy August for prospective home buyers.

30-year fixed rates surged by 42 basis points to 5.55%. Reversing a 9-basis point fall from the previous week, fixed rates are up 56 basis points from an August 3 low of 4.99%.

Year-on-year, 30-year fixed rates are up by 268 basis points while down 26 basis points since a June 22, 2022, peak of 5.81%.

Economic Data from the Week

A relatively busy economic calendar delivered mixed results on the US economic data front. However, the key stat of the week was the prelim services PMI, which pointed to a US economic recession.

In August, the services PMI fell from 47.3 to 44.1, dragging the private sector into a deeper contraction. The composite PMI declined from 47.7 to 45.0.

Despite the weak numbers, market uncertainty ahead of the Jackson Hole Symposium delivered a choppy week for the markets.

From the housing market, US economic indicators also disappointed. In July, new home sales slid by 12.6% following a 7.1% fall in June. Pending home sales fell by a further 1.0% after having declined by 8.9% in June.

Freddie Mac Rates

The weekly average rates for new mortgages, as of August 25, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates jumped by 42 basis points to 5.55%. This time last year, rates stood at 2.87%. The average fee remained unchanged at 0.8 points.

• 15-year fixed rates surged by 30 basis points to 4.85%. Rates were up by 268 basis points from 2.19% a year ago. The average fee increased from 0.7 points to 0.8 points.

• 5-year fixed rates slipped by three basis points to 4.36%. Rates were up by 194 basis points from 2.42% a year ago. The average fee rose from 0.3 points to 0.4 points.

According to Freddie Mac,

• Higher mortgage rates and economic woes are weighing on the housing sector, as home sales continue to fall.
• House prices are moderating, while consumer confidence is low.
• While demand wanes, potential buyers remain on the sidelines waiting to jump back into the market.

Mortgage Bankers’ Association Rates

For the week ending August 19, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 5.45% to 5.65%. Points rose from 0.57 to 0.68 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 5.38% to 5.43%. Points increased from 1.01 to 1.10 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 5.14% to 5.28%. Points rose from 0.33 to 0.58 (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, declined by 1.2%. The Index decreased by 2.3% in the week prior.

The Refinance Index fell by 3% and was 83% lower than the same week one year ago. In the previous week, the Index declined by 5%.

The refinance share of mortgage activity declined from 31.2% to 31.1%. In the week prior, the share decreased from 32.0% to 31.2%.

According to the MBA,

• Mortgage applications remained at a 22-year low, weighed by a sharp decline in refinancing demand and weak home purchase activity.
• Average purchase loan sizes also continued to head lower as activity at the higher end of the market slowed.

For the week ahead

It is a busy start to the week. Economic data includes consumer confidence and JOLTs job openings on Tuesday and APD nonfarm employment change figures on Wednesday. Mortgage rates will also likely react to Fed Chair Powell’s speech from Friday, which could nudge rates towards 6%.

Following Fed Chair Powell’s speech, FOMC member chatter will also influence the direction of mortgage rates.