U.S Mortgage Rates Rise in Response to U.S Treasury Yield Gains

Mortgage rates were on the rise once more in the third week of the year.

In the week ending 20^th January, 30-year fixed rates rose by 11 basis points to 3.56%. 30-year fixed rates had surged by 23 basis points in the week prior. As a result, 30-year fixed rates held above the 3% mark for a 10^th consecutive week.

Compared to this time last year, 30-year fixed rates were up by 77 basis points.

30-year fixed rates were still down by 138 basis points, however, since November 2018’s last peak of 4.94%.

Economic Data from the Week

Economic data was on the quieter side in the first half of the week. Stats were limited to NY Empire State Manufacturing numbers and housing sector data.

In spite of a mixed set of numbers, the markets brushed aside the stats. Market angst over FED monetary policy to curb inflation weighed on riskier assets in the week.

Expectations of 4 rate hikes drove U.S Treasury yields and U.S mortgage rates higher.

Freddie Mac Rates

The weekly average rates for new mortgages as of 20^th January were quoted by Freddie Mac to be:

• 30-year fixed rates increased by 11 basis points to 3.56% in the week. This time last year, rates had stood at 2.79%. The average fee remained unchanged at 0.7 points.

• 15-year fixed rose by 17 basis points to 2.79% in the week. Rates were up by 56 basis points from 2.23% a year ago. The average fee fell from 0.7 points to 0.6 points.

• 5-year fixed rates increased by 3 basis points to 2.60%. Rates were down by 52 basis points from 3.12% a year ago. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

• Mortgage rates rose once more as the 10-year U.S Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation.
• Purchase demand weakened as a result of the upward trend in mortgage rates.
• Supply remains near historically tight levels, however, with home prices remaining elevated. This continues to keep the market competitive.

Mortgage Bankers’ Association Rates

For the week ending 14^th January, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances rose from 3.52% to 3.64%. Points remained unchanged at 0.45 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 3.50% to 3.64%. Points decreased from 0.45 to 0.44 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 3.42% to 3.54%. Points rose from 0.36 to 0.47 (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, increased 2.3% in the week ending 14^th January. The index had increased 1.4% in the previous week.

The Refinance Index slid by 3% and was 49% lower than the same week one year earlier. In the previous week, the index had slipped by 0.1%.

The refinance share of mortgage activity decreased from 64.1% to 60.3% in the week ending 14^th January. In the previous week, the share had fallen from 65.4% to 64.1%.

According to the MBA,

• Mortgage rates hit their highest levels since March 2020, leading to a marked slowdown in refinance activity.
• Purchase applications jumped, however, with the average loan size for a purchase application hitting a record high $418,500.
• A lack of housing inventory and rising home prices continue to push average loan sizes higher.

For the week ahead

It’s a busy start to the week for the U.S markets. Economic data includes prelim private sector PMIs for January and consumer confidence figures. On Wednesday, core durable goods orders will also draw interest.

The main event of the week, however, will be the FED’s policy decision and forward guidance on monetary policy.