US Mortgage Rates Slide as Hawkish Fed Rate Hike Bets Tumble

In the week ending January 12, mortgage rates fell for the first time in three weeks and the seventh time in nine weeks. 30-year fixed mortgage rates decreased by 15 basis points to 6.33%.

Following the latest increase, 30-year fixed rates are up 134 basis points from the August 3 most recent low of 4.99%. 30-year fixed rates were up 288 basis points year-over-year.

Economic Data from the Week

The US Jobs Report from Friday, January 7, contributed to the pullback in mortgage rates. Softer wage growth numbers increased bets of a 25-basis point Fed interest rate hike.

ISM Manufacturing and Non-Manufacturing PMI numbers also weighed on yields and mortgage rates. Contractions in the manufacturing and non-manufacturing sectors reduced the chances of a 50-basis point interest rate hike.

Freddie Mac Rates

The weekly average rates for new mortgages, as of January 12, 2023, were quoted by Freddie Mac to be:

• 30-year fixed rates fell by 15 basis points to 6.33%. This time last year, rates stood at 3.45%.
• 15-year fixed rates slid by 21 basis points to 5.52%. Rates were up by 290 basis points from 2.62% a year ago.

According to Freddie Mac,

• Mortgage rates resumed their downward trends and remained sensitive to rate movements.
• Minor mortgage rate changes are delivering large movements in purchase demand.
• Latent demand has been evident as buyers react to rate movements in recent weeks.

Mortgage Bankers’ Association Rates

For the week ending January 6, 2023, the rates were:

• Average interest rates for 30-year fixed with conforming loan balances decreased from 6.58% to 6.42%. Points remained unchanged at 0.73 (incl. origination fee) for 80% LTV loans.
• Average 30-year fixed mortgage rates backed by FHA decreased from 6.45% to 6.39%. Points fell from 1.24 to 1.03 (incl. origination fee) for 80% LTV loans.
• Average 30-year rates for jumbo loan balances declined from 6.12% to 6.09%. Points rose from 0.45 to 0.66 (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 1.2%. The Index fell by 13.2% over the previous two weeks.

The Refinance Index increased by 5% and was 86% lower than the same week one year ago. Over the previous two weeks, the Index declined by 16.3%.

The refinance share of mortgage activity increased from 30.3% to 30.7% in the week ending January 6. In the week prior, the refinance share increased from 28.8% to 30.3%.

According to the MBA,

• Mortgage rates reacted to US economic indicators that showed a weakening economy and slower wage growth.
• Housing sector weakness continued to weigh on purchase applications, with the purchase applications index falling to its lowest level since 2014.
• However, the fall in mortgage rates supported a pickup in refinance activity, though the overall pace of refinance applications was lower than the November 2022 and December 2022 averages.

For the week ahead

It is a quiet first half of the week, with the US markets closed on Monday. However, wholesale inflation and retail sales numbers for December will influence. The numbers are out on Wednesday.

Disappointing retail sales figures would raise more concerns over the US economy. However, an unexpected jump in wholesale inflationary pressures could support a pickup in mortgage rates. Economists forecast the producer price index to increase by 6.8% year-over-year versus 7.4% in November.

From the week prior, US inflation figures for December and consumer inflation expectation numbers support a further decline in mortgage rates.

While the stats will influence, FOMC member commentary would need to support the shift in market sentiment toward the Fed interest rate trajectory to deliver another fall in mortgage rates. Hawkish chatter would catch the markets off-guard and put a 50-basis point February rate hike back on the table.