US Mortgage Rates Take a Hit on a Dovish 75-Basis Point Hike

In the week ending July 28, mortgage rates hit reverse as the markets responded to the Fed’s dovish 75-basis point rate hike.

30-year fixed rates slid by 24 basis points. Reversing a three-basis point increase from the previous week, mortgage rates returned to 5.30%.

Year-on-year, 30-year fixed rates were up by 250 basis points and 36 basis points since the November 2018 peak of 4.94%.

Economic Data from the Week

US economic data included consumer confidence and core durable goods orders.

While consumer confidence waned, core durable goods orders were positive.

In July, the CB Consumer Confidence Index fell from 98.4 to 95.7 versus a forecasted 97.2

Core durable goods were more upbeat, rising by 0.3% in June, with durable goods orders up 1.9%.

While the stats drew interest, the Fed monetary policy was the main event.

A rate hike in line with expectations and hopes of a slower pace of rate hikes weighed on US Treasury yields and mortgage rates.

Freddie Mac Rates

The weekly average rates for new mortgages, as of July 28, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates slid by 24 basis points to 5.30%. This time last year, rates stood at 2.80%. The average fee held steady at 0.8 points.

• 15-year fixed rates decreased by 17 basis points to 4.58%. Rates were up by 248 basis points from 2.10% a year ago. The average fee remained unchanged at 0.8 points.

• 5-year fixed rates slipped by two basis points to 4.29%. Rates were up by 184 basis points from 2.45% a year ago. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

• Purchase demand continued to slide due to higher rates, elevated home prices, the rising threat of a recession, and waning consumer confidence.
• As the market rebalances to the higher mortgage rate environment, the housing market is seeing a period of deflated sales activity.

Mortgage Bankers’ Association Rates

For the week ending July 22, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 5.82% to 5.74%. Points fell from 0.65 to 0.61 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 5.50% to 5.54%. Points decreased from 1.02 to 0.85 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 5.31% to 5.32%. Points rose from 0.38 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, decreased by 1.8% in the week ending July 22. The Index fell by 6.3% in the week prior.

The Refinance Index declined by 4% from the previous week and was 83% lower than the same week a year ago. In the week prior, the Index also fell by 4%.

The refinance share of mortgage activity decreased from 31.4 to 30.7. In the previous week, the refinance share increased from 30.8% to 31.4%.

According to the MBA,

• Mortgage applications fell for the fourth week in a row to the lowest level of activity since Feb 2020.
• Affordability issues and economic uncertainty weighed on homebuyer appetite.
• A downward trend in purchase applications has been aligned with data showing a slowdown in sales for newly constructed and existing homes.

For the week ahead

It is a relatively quiet week ahead, with key stats from the US, including ISM private sector PMIs,

The market’s favored ISM Non-Manufacturing PMI will likely have more influence on yields. According to the Markit survey, the US services sector contracted in July, suggesting more US economic woes in Q3.

Weak ISM numbers would likely lead US Treasury yields and mortgage rates lower. Economists have forecast a fall from 55.3 to 54.0.

While the stats will influence, FOMC member chatter will also need monitoring. The markets will eye any commentary following the Q2 GDP numbers from Thursday.