US Mortgage Rates Near 6% on the Fed Rate Hike and Outlook

In the week ending June 16, mortgage rates rose for the second time in five weeks.

30-year fixed rates surged by 55 basis points to 5.78%. In the week prior, 30-year fixed rates rose by 14 basis points.

Year-on-year, 30-year fixed rates were up by 285 basis points and by 84 basis points since November 2018’s last peak of 4.94%.

Economic Data from the Week

On the economic data front, US wholesale inflation and retail sales were the key stats in the first half of the week.

A pickup in wholesale inflationary pressure and disappointing retail sales figures tested support for riskier assets.

While the stats drew interest, the Fed monetary policy decision and the FOMC projections were the key drivers.

The largest rate hike since 1994 and a median projection of the Federal Funds Rate hitting 3.8% in 2023 drove mortgage rates northwards.

Freddie Mac Rates

The weekly average rates for new mortgages, as of June 16, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates surged by 55 basis points to 5.78%. This time last year, rates stood at 2.93%. The average fee held steady at 0.9 points.

• 15-year fixed rates jumped by 43 basis points to 4.81% in the week. Rates were up by 257 basis points from 2.24% a year ago. The average fee increased from 0.8 points to 0.9 points.

• 5-year fixed rates increased by 21 basis points to 4.33%. Rates were up by 181 basis points from 2.52% a year ago. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

• Mortgage rates surged by the largest one-week increase on record, driven by a shift in sentiment towards inflation and Fed monetary policy.
• The rise in mortgage rates will lead to further moderation in housing sector activity to support a more balanced market.

Mortgage Bankers’ Association Rates

For the week ending June 10, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 5.40% to 5.65%. Points rose from 0.60 to 0.71 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 5.30% to 5.36%. Points rose from 0.79 to 1.00 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 4.99% to 5.25%. Points rose from 0.44 to 0.54 (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, increased by 6.6%. The Index fell by 6.5% in the week prior.

The Refinance Index increased by 4% and was 76% lower than the same week one year ago. In the previous week, the Index fell by 6%.

The refinance share of mortgage activity decreased from 32.2% to 31.7%. In the previous week, the share increased from 31.5% to 32.2%.

According to the MBA,

• Mortgage rates jumped to the highest level since 2008.
• The upswing was aligned with Treasury yields that responded to higher than anticipated inflation figures and expectations of the Fed lifting rates at a faster pace.
• Application activity rebounded despite the uptrend in mortgage rates.
• Refinance activity remains more than 70% lower than last year due to elevated mortgage rates.
• Purchase applications were down 15% year-on-year, weighed by supply and affordability issues that coincided with the upswing in mortgage rates.

For the week ahead

It is a quiet first half of the week. There are no material US stats for the markets to consider.

While there are stats to consider, Fed Chair Powell testimony on Wednesday will influence Treasury yields and mortgage rates.

Following last week’s FOMC projections and press conference, however, the markets will not be expecting a break from the script.