US Mortgage Rates Inch Higher but Come Up Short of 7%

In the week ending October 20, mortgage rates increased for the eighth time in nine weeks. 30-year fixed mortgage rates rose by two basis points to 6.94%. In the week prior, 30-year fixed rates had surged by 26 basis points to 6.92%.

Following the latest increase, rates are up 195 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 385 basis points year-over-year to strike a new 2022 peak.

Economic Data from the Week

It was a relatively quiet week on the economic calendar, with NY Empire State Manufacturing and Industrial production figures drawing interest early in the week. A larger-than-expected fall in manufacturing numbers failed to influence while better-than-expected supported the Fed’s more hawkish outlook.

On Thursday, US economic indicators impressed, fueling expectations of 75-basis point Fed rate hikes in November and December.

In October, the Philly Fed Manufacturing Index rose from -9.9 to -8.7 versus a forecast of -5.0. While falling short of expectations, components of the Index were upbeat.

The New Orders Index rose from -17.6 to -15.9, with the Prices Paid Index up from 29.8 to 36.3. However, the employment numbers drew greater interest. The Philly Fed Employment Index jumped from 12.0 to 28.5.

Jobless claims also reflected improving labor market conditions, falling from 226k to 214k in the week ending October 14.

Freddie Mac Rates

The weekly average rates for new mortgages, as of October 20, 2022, were quoted by Freddie Mac to be:

• 30-year fixed rates increased by two basis points to 6.94%. This time last year, rates stood at 3.09%. The average fee increased from 0.8 points to 0.9 points.

• 15-year fixed rates rose by 14 basis points to 6.23%. Rates were up by 390 basis points from 2.32% a year ago. The average fee held steady at 1.1 points.

• 5-year fixed rates fell by ten basis points to 5.71%. Rates were up by 317 basis points from 2.54% a year ago. The average fee rose from 0.2 points to 0.4 points.

According to Freddie Mac,

• Mortgage rates continued to adversely affect the housing market in the form of declining demand.
• Homebuilder confidence has also tumbled, weighing on the construction of single-family residential homes.

Mortgage Bankers’ Association Rates

For the week ending October 14, 2022, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances increased from 6.81% to 6.94%. Points fell from 0.97 to 0.95 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA rose from 6.61% to 6.63%. Points decreased from 1.71 to 1.60 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances increased from 6.25% to 6.31%. Points rose from 0.61 to 0.67 (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, decreased by 4.5%. The Index fell by 2.0% in the week prior.

The Refinance Index declined by 7.0% and was 86% lower than the same week one year ago. In the previous week, the Index slipped by 2.0%.

The refinance share of mortgage activity decreased from 29.0% to 28.3%. In the previous week, the share remained unchanged at 29.0%.

According to the MBA,

• Mortgage applications are now in their fourth month of decline, with applications at the lowest level since 1997.
• The rapid ascent of mortgage rates has impacted refinance activity and caused greater affordability challenges in the purchase market.
• Purchase and refinance applications are down 38% and 86%, respectively, over the year.

For the week ahead

It is a relatively busy week ahead on the US economic calendar. Early in the week, private sector PMIs for October and Consumer Confidence will draw plenty of interest.

On Friday, FOMC member chatter eased bets of a 75-basis point rate hike in December. News hit the wires of FOMC members preparing to discuss lifting rates at a less aggressive pace. US Treasury Secretary Janet Yellen shared her views on inflation, suggesting that, while more upside is likely, inflation is not embedded in the US economy.

However, solid PMI numbers and a pickup in consumer confidence could reverse the less hawkish outlook. On Thursday, US GDP numbers for the third quarter will also influence.

From elsewhere, delayed stats from China will set the tone. Q3 GDP, retail sales, and industrial production figures will influence market risk sentiment.