US Mortgage Rates Jump on Hawkish Fed Bets, Hitting Applications

In the week ending February 16, mortgage rates rose for the second consecutive week and for the second time in six weeks. 30-year fixed mortgage rates jumped by 20 basis points to 6.32%.

Following the latest rise, 30-year fixed rates are up 133 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 240 basis points year-over-year.

Economic Data from the Week

It was a busy week on the US Economic Calendar. On Tuesday, the heavily anticipated US CPI Report sent yields higher. While the US annual inflation rate softened from 6.5% to 6.4%, inflation remained sticky.

With elevated inflation and tight labor market conditions, the Fed may need to deliver a more aggressive interest rate trajectory and hold rates higher for longer to sustainably return inflation to target.

On Wednesday, retail sales figures impressed. In January, retail sales jumped by 3.0%, reversing a 1.1% decline from December. Notably, retail sales increased for the first time in three months and all but removed any immediate fears of a Fed-fueled US economic recession.

Freddie Mac US Mortgage Rates

The weekly average rates for new mortgages, as of February 16, 2023, were quoted by Freddie Mac to be:

• 30-year fixed rates jumped by 20 basis points to 6.32%. This time last year, rates stood at 3.92%.
• 15-year fixed rates surged by 26 basis points to 5.51%. Rates were up by 236 basis points from 3.15% a year ago.

According to Freddie Mac,

• Signs of resilience in the US economy delivered a second consecutive weekly increase in mortgage rates.
• Housing costs are also increasing, which is affecting inflation.

Mortgage Bankers’ Association Rates

For the week ending February 10, 2023, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 6.18% to 6.39%. Points increased from 0.64 to 0.70 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 6.14% to 6.25%. Points rose from 0.88 to 1.14 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances rose from 5.96% to 6.26%. Points fell from 0.55 to 0.43 (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 7%. The Index jumped by 7.4% in the previous week.

The Refinance Index tumbled by 13% and was 76% lower than the same week one year ago. In the previous week, the Refinance Index surged by 18%. The refinance share of mortgage activity declined from 33.9% to 32.0%. In the previous week, the refinance share increased from 31.2% to 33.9%.

According to the MBA,

• Mortgage rates increased across the broad, driven by expectations of sticky inflation, which would force the Fed to keep restrictive monetary policy conditions for longer.
• Applications fell for the second time in three weeks, with refinance borrowers sitting on the sidelines because of rising mortgage rates.
• Purchase applications fell to their lower level since the beginning of the year and were down by more than 40% year-over-year.

For the week ahead

It is a quiet first half of the week. Prelim February private sector PMI numbers will draw interest on Tuesday. However, following the impressive ISM Non-Manufacturing PMI for January, the services PMI would need to fall to support a pullback in yields.

Following last week’s initial jobless claims and wholesale inflation numbers, bets are for a more hawkish Fed policy outlook. FOMC members Loretta Mester and James Bullard moved the dial, delivering hawkish speeches in the second half of last week.

This week, FOMC member chatter could ease the pain for home buyers should the doves take the reins. However, the doves would need to be convincing. The stats suggest that the Fed needs to keep interest rates higher for longer, removing the chance of a 2023 interest rate cut.