US Mortgage Rates Fall for a Sixth Week as Recession Fears Grow

In the week ending December 22, mortgage rates fell for the sixth consecutive week. 30-year fixed mortgage rates fell by four basis points to 6.27.

Following the latest decline, 30-year fixed rates are up 128 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 322 basis points year-over-year.

Economic Data from the Week

A quiet first half of the week left investors to consider housing sector data for November and consumer confidence figures for December. It was a mixed bag, with housing sector data reflecting deteriorating conditions while consumer confidence improved.

Building permits tumbled by 11.2% in November, following a 3.3% decline in October. Housing starts fell by 0.5%, following a 2.1% decline in October, reflecting the pullback by homebuilders.

While housing market conditions deteriorated, consumer confidence improved in December. The CB Consumer Confidence Index rose from 101.4 to 108.3. However, the cut-off date for the survey was December 15, which means that the consumer confidence survey did not include consumer sentiment toward the hawkish Fed rate hike,

Freddie Mac Rates

The weekly average rates for new mortgages, as of December 22, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates declined by four basis points to 6.27%. This time last year, rates stood at 3.05%.
• 15-year fixed rates rose by 15 basis points to 5.69%. Rates were up by 339 basis points from 2.30% a year ago.

According to Freddie Mac,

• Mortgage rates continued the downward trend, with rates down significantly over the last six weeks, supporting potential home buyers.
• However, housing sector data shows that homeowners remain hesitant to list their homes.
• More than two-thirds of homeowners reportedly have fixed mortgage rates below four percent.

Mortgage Bankers’ Association Rates

For the week ending December 16, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 6.42% to 6.34%. Points fell from 0.64 to 0.59 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA decreased from 6.40% to 6.35%. Points declined from 1.03 to 0.99 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances decreased from 6.14% to 5.97%. Points rose from 0.42 to 0.53 (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 by 0.9% in the week ending December 16. The Index rose by 3.2% in the week prior.

The Refinance Index increased by 6% from the previous week and was 85% lower than the same week one year ago. In the previous week, the Index increased by 3%.

The refinance share of mortgage activity increased from 29.4% to 31.3%. In the week prior, the refinance share increased from 28.7% to 29.4%.

According to the MBA,

• The Federal Reserve raised its short-term rate target last week while longer-term rates, including mortgage rates, fell.
• The 30-year conforming rate declined to 6.34%, its lowest level since September.
• Refinance application volumes have risen in response to the fall in rates but remain elevated compared with a year ago.
• Seasonal factors have contributed to weak demand from homebuyers.
• Housing sector data shows that homebuilders are cutting back on new construction in response to weaker demand, which will persist in 2023, with the US likely to enter a recession.
• Nonetheless, a continued decline in mortgage rates would bring buyers to the market as affordability improves.

For the week ahead

It is a quiet first half of the week, with US economic data on the lighter side. Key stats include trade figures and housing sector numbers.

While housing sector numbers may not influence the Fed, the figures will give a sense of how consumers and home builders feel about the economy and the economic outlook.

Demand has weakened, with house prices and mortgage rates on a downward trend. An economic recession, a bearish equity market, and falling house prices would force consumers to tighten their purse strings, which could impact growth prospects while easing demand-driven inflationary pressure.