US Mortgage Rates Rose for a Second Week, Weighing on Applications

In the week ending January 5, mortgage rates rose for the second consecutive week and the second time in eight weeks. 30-year fixed mortgage rates increased by six basis points to 6.48.

Following the latest increase, 30-year fixed rates are up 149 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 326 basis points year-over-year.

Economic Data from the Week

It was a quiet week on the US economic calendar, with economic indicators limited to private sector PMI numbers and JOLTs job openings.

A fall in the Markit-survey manufacturing PMI from 47.7 to 46.2 and the ISM Manufacturing PMI from 49.0 to 48.4 fueled bets of a less hawkish Fed. A modest decline in job openings also supported the hope of the Fed taking its foot off the gas. However, the FOMC meeting minutes painted a different picture.

The minutes removed hopes of a 2023 Fed pivot, with the Fed focused on inflation and not the economy.

According to the FOMC meeting minutes,

“No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023.”

The hawkish minutes were enough to offset the impact of the manufacturing PMI numbers on yields, supporting a pickup in mortgage rates.

Freddie Mac Rates

The weekly average rates for new mortgages, as of January 5, 2023, were quoted by Freddie Mac to be:

• 30-year fixed rates increase by six basis points to 6.48%. This time last year, rates stood at 3.22%.
• 15-year fixed rates rose by five basis points to 5.73%. Rates were up by 330 basis points from 2.43% a year ago.

According to Freddie Mac,

• Mortgage application activity tumbled to a 25-year low, with elevated mortgage rates continuing to impact the housing market.
• However, Inflationary pressures are easing, which should send mortgage rates lower in 2023.
• A significant fall in mortgage rates coupled with a strong labor market and ‘a large demographic tailwind of Millennial renters’ should support a recovery.

Mortgage Bankers’ Association Rates

For the week ending December 30, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 6.42% to 6.58%. Points rose from 0.65 to 0.73 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 6.41% to 6.45%. Points rose from 1.13 to 1.24 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances remained unchanged at 6.12%. Points rose from 0.37 to 0.45 (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 13.2% compared with two weeks ago. The Index fell by 0.9% in the week ending December 16.

The Refinance Index declined by 16.3% and was 87% lower than the same week one year ago, with the refinance share of mortgage activity up from 28.8% to 30.3%.

According to the MBA,

• Mortgage applications continued to fall because of mortgage rates sitting above 6% and the threat of an economic recession.
• Applications fell to their lowest level since 1996, with purchase applications affected by slowing home sales in both new and existing segments.
• Despite a slower pace of home-price growth, elevated mortgage rates continue to impact affordability, leaving prospective homebuyers on the sidelines.

For the week ahead

It is a quiet first half of the week, with no US economic indicators for the markets to consider. While there are no stats, Fed Chair Powell will speak on Tuesday. Forward guidance on monetary policy and views on the economic outlook will impact Treasury yields and mortgage rates.

From the week prior, ISM Non-Manufacturing PMI numbers and the Jobs Report fueled bets of a 25-basis point rate hike in February. While the numbers support a pullback in mortgage rates, a hawkish Fed Chair would overshadow the numbers.