U.S Mortgage Rates Surge in Response to U.S Inflation Figures for December

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

In the week ending 13^th January, 30-year fixed rates surged by 23 basis points to 3.45%. 30-year fixed rates had risen by 11 basis points in the week prior. As a result, 30-year fixed rates held above the 3% mark for an 9^th consecutive week.

Compared to this time last year, 30-year fixed rates were up by 80 basis points.

30-year fixed rates were still down by 149 basis points, however, since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a relatively quiet first half of the week on the U.S economic calendar. Key stats included December inflation figures on Wednesday.

In December, the U.S annual rate of inflation accelerated from 6.8% to 7.0%, the highest since 1982. The core annual rate of inflation picked up from 4.9% to 5.5%.

On the monetary policy front, FED Chair Powell had given testimony on Tuesday, delivering some market relief. The FED Chair talked of the U.S economy’s ability to withstand rate hikes while also holding back from suggesting the need for more than 3 hikes in the year.

The inflation figures ultimately drove yields northwards, however.

Freddie Mac Rates

The weekly average rates for new mortgages as of 13^th January were quoted by Freddie Mac to be:

• 30-year fixed rates jumped by 23 basis points to 3.45% in the week. This time last year, rates had stood at 2.65%. The average fee remained unchanged at 0.7 points.

• 15-year fixed rose by 19 basis points to 2.62% in the week. Rates were up by 46 basis points from 2.16% a year ago. The average fee rose from 0.6 points to 0.7 points.

• 5-year fixed rates increased by 16 basis points to 2.57%. Rates were down by 18 basis points from 2.75% a year ago. The average fee fell from 0.5 points to 0.3 points.

According to Freddie Mac,

• All mortgage types saw rates rise, driven by the prospect of a faster than expected tightening of monetary policy.
• The shift in sentiment was driven by a continued pickup in inflation exacerbated by uncertainty in labor and supply chains.
• In spite of the rise in mortgage rates this year, purchase demand has yet to reflect the jump in rates.
• Given the fast pace of home price growth, however, it will likely dampen demand in the near future.

Mortgage Bankers’ Association Rates

For the week ending 7^th January, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances rose from 3.33% to 3.52%. Points decreased from 0.48 to 0.45 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA increased from 3.40% to 3.50%. Points increased from 0.42 to 0.45 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 3.31% to 3.42%. Points fell from 0.38 to 0.36 (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 by 1.4% from a week earlier. The Index had fallen by 2.7% from 2-weeks earlier.

The Refinance Index slipped by 0.1% in the week ending 7^th January and was 50 basis points lower than the same week a year ago. The index had declined by 2% from 2-weeks ago. The refinance share of mortgage activity decreased from 65.4% to 64.1% in the week ending 7^th January. The share had risen from 63.9% to 65.4% in the 2-weeks prior.

According to the MBA,

• Mortgage rates increased significantly as the FED signaled tighter policy ahead, pushing yields higher.
• 30-year fixed hit 3.52%, its highest level since March 2020.
• Rates at these levels are quickly closing the door on refinance opportunities for many borrowers.
• Applications remained at their lowest level in over a month.
• The housing market started 2022 on a strong note. However, the strength in growth will be dependent upon a more rapid growth in housing inventory to meet demand.

For the week ahead

It’s a particularly quiet start to the week for the U.S markets. Economic data is limited to NY Empire State Manufacturing numbers that should have a muted impact on yields.

From elsewhere, 4^th quarter GDP numbers from China will also draw interest on Monday, however.

Away from the economic calendar, expect COVID-19 news updates to remain a key area of focus.