US Mortgage Rates Slump in Response to CPI Numbers and Fed Pivot Bets

In the week ending November 17, mortgage rates fell for the third time in seven weeks. 30-year fixed mortgage rates tumbled by 47 basis points to 6.61%. In the week prior, 30-year fixed rates increase by 13 basis points to 7.08%.

Following the latest slide, rates are up 162 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 351 basis points year-over-year.

Economic Data from the Week

It was a busier first half of the week on the economic calendar, with US wholesale inflation and retail sales the material stats of the week.

The numbers delivered mixed results. While wholesale inflation figures supported the bets of a Fed pivot in December, retail sales figures impressed, suggesting room for more front-loading.

In October, the wholesale annual inflation rate softened from 8.4% to 8.0%, while retail sales increased by 1.3%, month-on-month.

However, the previous week’s US CPI report sent mortgage rates tumbling. In October, the US annual inflation rate softened from 8.2% to 7.7%, fueling market bets of a December Fed pivot.

In response to the report, the probability of a 75-basis point December rate hike fell to 17.0%. This morning, the likelihood of a 75-basis point December rate hike stood at 24.2%.

Hawkish Fed chatter in the week supported an upswing that could nudge mortgage rates higher in the week ahead. According to the FedWatch Tool, the probability of a 75-basis point rate hike stood at 19.4% one week earlier and 75.4% one month earlier.

Freddie Mac Rates

The weekly average rates for new mortgages, as of November 17, 2022, quoted by Freddie Mac were:

• 30-year fixed rates tumbled by 47 basis points to 6.61%. This time last year, rates stood at 3.10%.
• 15-year fixed rates slid by 40 basis points to 5.98%. Rates were up by 359 basis points from 2.39% a year ago.

According to Freddie Mac,

• Mortgage rates slumped due to inflation figures that suggested US inflation may have peaked.
• Despite the fall in mortgage rates, the housing market has a bumpy road ahead.
• Inflation remains elevated, and the Fed will likely keep interest rates at elevated levels to bring inflation to target.
• Consumers will continue to feel the impact of the inflation and Fed monetary policy environment.

Mortgage Bankers’ Association Rates

For the week ending November 11, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 7.14% to 6.90%. Points fell from 0.77 to 0.56 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 6.86% to 6.93%. Points decreased from 1.37 to 0.99 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 6.50% to 6.51%. Points fell from 0.78 to 0.64 (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 2.7% in the week ending November 11. The Index decreased by 0.1% in the week prior.

The Refinance Index declined by 2% and was 88% lower than the same week one year ago. In the previous week, the Index slid by 4%.

The refinance share of mortgage activity decreased from 28.1% to 27.6%. The refinance share fell from 28.6% to 28.1% in the previous week.

According to the MBA,

• Mortgage rates decreased on signs of slower inflation, sending Treasury yields lower.
• The 30-year fixed rate saw the most marked weekly decline since mid-2022.
• Adjusted application activity increased in response to falling rates.
• However, the average purchase loan size fell to its smallest amount since 2021, with refinance activity under pressure.

For the week ahead

It is a busy first half of the week on the economic data front. The Wednesday session will provide Treasuries ahead of the Thursday Thanksgiving holiday.

Michigan consumer sentiment, core durable goods, private sector PMIs, and jobless claims will be in focus.

While the stats will influence near term mortgage rates, FOMC member chatter will also need consideration. Following hawkish Fed chatter from last week, more of the same could refuel bets of a 75-basis point Fed rate hike in December. While softer, inflation remains elevated.

With the US unemployment rate at 3.7%, the Fed still has plenty of wriggle room to deliver another 75-basis point hike before taking its foot off the gas. However, disappointing private sector PMIs, a slide in consumer sentiment, and a sharp rise in jobless claims could change the narrative.