U.S Mortgage Rates Hit the Highest Level Since May 2020

Mortgage rates were on the rise once more in the first week of 2022.

In the week ending 6^th January, 30-year fixed rates increased by 11 basis points to 3.22%. 30-year fixed rates had risen by 6 basis points in the week prior. As a result, 30-year fixed rates held above the 3% mark for an 8^th consecutive week.

Compared to this time last year, 30-year fixed rates were up by 55 basis points.

30-year fixed rates were still down by 172 basis points, however, since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a relatively busy first half of the week on the U.S economic calendar. Key stats included ISM Manufacturing PMI and finalized Markit survey private sector PMIs. On the labor market front, JOLT’s job openings and ADP nonfarm payrolls also drew interest.

The stats were skewed to the negative, with the private sector seeing slower growth in December. In spite of the fall in the PMIs, the numbers were not weak enough to raise any red flags.

JOLT’s job openings for November had also disappointed ahead of the ADP nonfarm employment change figures on Wednesday, which impressed.

In December, nonfarm payrolls jumped by 800,000 according to the ADP. Economists had forecast a more modest 400k rise.

While the stats drew plenty of interest, it was the FOMC meeting minutes that drive yields northwards. A more hawkish than anticipated set of minutes that pointed to a more aggressive removal of policy support drove mortgage rates northwards.

Freddie Mac Rates

The weekly average rates for new mortgages as of 6^th January were quoted by Freddie Mac to be:

• 30-year fixed rates increased by 11 basis points to 3.22% in the week. This time last year, rates had stood at 2.67%. The average fee remained unchanged at 0.7 points.

• 15-year fixed rose by 10 basis points to 2.43% in the week. Rates were up by 26 basis points from 2.17% a year ago. The average fee fell from 0.7 points to 0.6 points.

• 5-year fixed rates remained unchanged at 2.41%. Rates were down by 30 basis points from 2.71% a year ago. The average fee remained unchanged at 0.5 points.

According to Freddie Mac,

• Mortgage rates increased during the first week of 2022 to the highest level since May 2020 and are up more than half a percent since January 2021.
• With higher inflation, promising economic growth, and a tight labor market, we expect that rates will continue to rise.
• The impact of higher rates on purchase demand remains modest so far given the current first-time homebuyer growth.

Mortgage Bankers’ Association Rates

For the week ending 31^st December, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances rose from 3.31% to 3.33%. Points increased from 0.38 to 0.48 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 3.39% to 3.40%. Points increased from 0.37 to 0.42 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 3.35% to 3.31%. Points rose from 0.34 to 0.38 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, declined by 2.7% from 2-weeks earlier. The Index had slipped by 0.6% in the week ending 17^th December.

The Refinance Index declined by 2% from 2-weeks ago and was 40% lower than the same week one year ago. The index had risen by 2% in the week ending 17^th December.

In the week ending 31st December, the refinance share of mortgage activity rose from 63.9% to 65.4%. The share had increased from 63.3% to 65.2% in the week ending 17th December.

According to the MBA,

• Mortgage rates continued to creep higher over the past 2-weeks, as markets maintained an optimistic view of the economy.
• The 30-year fixed rate increased by 6 basis points to its highest level since April 2021.
• Higher rates at the end of 2021 caused refinance activity to decline. Refinance demand continues to dwindle as many borrowers refinanced in 2020 and in early 2021. At that time mortgage rates were around 40 basis points lower.
• The purchase market also finished the year on a slower note. The final week was the weakest since October 2021.
• While average loan sizes were lower, home price appreciation remains at very high levels.
• Despite supply and affordability challenges, 2021 was a record year for purchase originations. MBA expects 2022 to be even stronger with total purchase activity reaching $1.74tn.

For the week ahead

It’s a quieter week ahead on the U.S economic data front. The markets will need to wait until Wednesday for December inflation figures that will be one of the key stats of the week.

Following the more hawkish than anticipated FOMC meeting minutes from last week, another pickup in inflationary pressure would likely be a green light for a March rate hike.

On the monetary policy front, FED Chair Powell is due to give testimony on Tuesday, which could also move the dial.

From elsewhere, inflation numbers from China will also draw interest on Wednesday.

Away from the economic calendar, expect COVID-19 news updates to remain a key driver, however.