US Mortgage Rates Fall For a Third Week on Rising Bets of a Fed Pivot

In the week ending January 26, mortgage rates fell for the third consecutive week and the ninth time in eleven weeks. 30-year fixed mortgage rates decreased by two basis points to 6.13%.

Following the latest decline, 30-year fixed rates are up 114 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 258 basis points year-over-year.

Economic Data from the Week

It was a quiet first half of the week on the US economic calendar. Prelim January private sector PMI numbers drew interest, however. While contracting at a slower pace, the manufacturing and services sectors continued to struggle.

The numbers supported bets of a 25-basis point interest rate hike and a less aggressive Fed interest rate trajectory to curb inflation.

No FOMC members spoke during the week. The Fed entered the blackout period on Saturday, January 21.

Freddie Mac US Mortgage Rates

The weekly average rates for new mortgages, as of January 26, 2023, were quoted by Freddie Mac to be:

• 30-year fixed rates fell by two basis points to 6.13%. This time last year, rates stood at 3.55%.
• 15-year fixed rates declined by 11 basis points to 5.17%. Rates were up by 237 basis points from 2.80% a year ago.

According to Freddie Mac,

• Home purchase demand is improving on the downward trend in mortgage rates.
• Demand remains robust, supported by first-time buyers, while potential homebuyers remain sensitive to mortgage rate fluctuations.

Mortgage Bankers’ Association Rates

For the week ending January 20, 2023, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 6.23% to 6.20%. Points rose from 0.67 to 0.69 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA decreased from 6.26% to 6.22%. Points rose from 1.05 to 1.10 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances declined from 6.08% to 5.92%. Points increased from 0.40 to 0.41 (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, rose by 7.0%. The Index surged by 27.9% in the previous week.

The Refinance Index increased by 15% and was 77% lower than the same week one year ago. In the previous week, the Index surged by 34%. The refinance share of mortgage activity increased from 31.2% to 31.9%, following an increase from 30.7% to 31.2% in the week prior.

According to the MBA,

• Mortgage rates fell for the third consecutive week, supporting potential homebuyers looking ahead to the spring homebuying season.
• 30-year fixed rates fell to their lowest level since September 2022.
• Applications remained close to 39% lower than a year ago despite the upward trend in mortgage applications.
• Homebuying activity remains lackluster, though a continued decline in mortgage rates could remove affordability challenges.
• Despite a recent surge in refinance activity, rates sit more than two percentage points higher than one year ago, giving borrowers little incentive to refinance.

For the week ahead

It is a busy week ahead on the economic calendar. On Tuesday, consumer confidence will be in the spotlight. A pickup in consumer confidence would support a rise in US Treasury yields. However, with the Fed delivering its first interest rate decision of 2023 on Wednesday, market reaction to the numbers could be muted.

On Wednesday, ADP nonfarm employment change, JOLTs job openings, and ISM Manufacturing PMI numbers will also draw interest. However, the Fed interest rate decision and forward guidance will be the main event. A 25-basis point interest rate hike would leave the FOMC statement to influence.

From the week prior, Q4 GDP, jobless claims, and personal spending figures were upbeat but not enough to shift sentiment toward Fed monetary policy. Inflationary pressures softened further in December, allowing the Fed to take its foot off the gas.