U.S Mortgage Rates Jump on Rising Treasury Yields as Reinflation Jitters Hit the Markets

Bob Mason
·4 min read

Mortgage rates were on the rise for a 2nd consecutive week in the week ending 25th February. Following an 8-basis point rise from the week prior, 30-year fixed rates jumped by 16 basis points to 2.97%.

Compared to this time last year, 30-year fixed rates were down by 48 basis points.

30-year fixed rates were also down by 197 basis points 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 economic data front.

Key stats from the U.S included consumer confidence figures for February and housing sector data.

The stats were skewed to the positive, with consumer confidence on the rise and new home sales also seeing solid growth.

In January, new home sales increased by 4.3%, following a 5.5% jump in December.

More significantly, house prices were also on the rise. The S&P/CS HPI Composite – 20 n.s.a. was up by 10.1% year-on-year in December. In November, prices had risen by 9.2%.

In February, the CB Consumer Confidence Index increased from 88.9 to 91.3, also supporting riskier assets.

On the monetary policy front, FED Chair Powell delivered testimony to lawmakers midweek. The FED Chair looked to ease market fears of a shift in monetary policy stemming from a build-up in inflationary pressures.

10-year U.S Treasury yields hit a 1-year high in the week, driven by a shift in sentiment towards inflation and interest rates, however.

Freddie Mac Rates

The weekly average rates for new mortgages as of 25th February were quoted by Freddie Mac to be:

  • 30-year fixed rates increased by 16 basis points to 2.97% in the week. This time last year, rates had stood at 3.45%. The average fee fell from 0.7 to 0.6 points.

  • 15-year fixed rates rose by 13 basis points to 2.34% in the week. Rates were down by 61 basis points from 2.95% a year ago. The average fee fell from 0.7 points to 0.6 points.

  • 5-year fixed rates surged by 22 basis point 3.99%. Rates were down by 21 points from 3.20% a year ago. The average fee fell from 0.2 points to 0.1 point.

According to Freddie Mac,

  • Optimism continues as the economy slowly regains its footing, driving mortgage rates up.

  • Though rates may continue to rise, they remain near historic lows.

  • However, combined with demand-fueled rising home prices and low inventory, these rising rates limit how competitive a potential homebuyer can be and how much house they are able to purchase.

Mortgage Bankers’ Association Rates

For the week ending 19th February, the rates were:

  • Average interest rates for 30-year fixed to conforming loan balances increased from 2.98% to 3.08%. Points increased from 0.43 to 0.46 (incl. origination fee) for 80% LTV loans.

  • Average 30-year fixed mortgage rates backed by FHA increased from 2.93% to 3.00%. Points rose fell 0.37 to 0.33 (incl. origination fee) for 80% LTV loans.

  • Average 30-year rates for jumbo loan balances rose from 3.11% to 3.23%. Points increased from 0.35 to 0.43 (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, slid by 11.4% in the week ending 19th February. In the previous week, the index had fallen by 5.1%.

The Refinance Index slid by 11.0% and was 50% higher than the same week a year ago. The index had fallen by 5.0% in the week prior.

In the week ending 19th February, the refinance share of mortgage activity fell from 69.3% to 68.5%. In the week prior, the share had fallen from 70.2% to 69.3%.

According to the MBA,

  • Mortgage rates have increased in six of the last eight weeks, with the 30-year fixed rate climbing above 3% to its highest level since Sept-2020.

  • As a result, overall refinance activity fell 11% to its lowest level since Dec-2020.

  • Additionally, the severe winter weather in Texas affected many households and lenders. This caused more than a 40% drop in both purchase and refinance applications in the state last week.

  • The housing market in most of the country remains strong, with activity last week 7% higher than a year ago.

  • Overall loan size of purchase applications increased to a record $418,000.

For the week ahead

It’s a relatively busy first half of the week on the U.S economic calendar. Key stats include ISM Manufacturing and Non-Manufacturing PMI and ADP nonfarm employment change figures for February.

Positive stats, particularly non-manufacturing and ADP numbers would support a further pickup in Treasury yields.

With the market focus now back on inflation and policy outlook, central bank chatter in the week will also influence rates.

From elsewhere, private sector PMIs from China will also draw attention in the week.

Away from the economic calendar, U.S foreign policy will be in the spotlight, with Iran and China areas of focus.

This article was originally posted on FX Empire

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