According to a CreditSights report released Tuesday, the Bush Administration’s recent mortgage interest rate freeze proposal will likely create more problems than solutions for most homeowners.
The report claims the freeze plan will undermine the viability of the secondary market that has played a key role in providing mortgage loans, and will set in place similar expectations for Alt-A borrowers who face resets in coming years.
Creditsights analyst Christian Stracke noted that fifty percent of mortgage loans since 2002 have been made available via lending from the securitization markets, and said loan modifications would reduce the value of residential mortgage backed securities (RMBS).
“The potential contagion into the broader RMBS market could jeopardize the extension of credit through the securitization market, further undermining the benefits generated from the modification plan,” said Stracke.
He also argued that Alt-A mortgage resets could turn out to be just as bad as their subprime brethren, forcing the government to step in yet again to assist another set of at-risk borrowers.
“The combination of option adjustable rate mortgages and traditional Alt-A adjustable rate mortgage resets will be just as bad, if not worse, in terms of the absolute par loan dollar amount as the subprime reset problem, although it is not set to peak until 2010-2011,” Stracke said.
“Assuming the housing market has not shaken off the current slump by 2010, the wave of resets could create yet another wave of foreclosures among a class of homeowners that is going to remember the forbearance offered to subprime borrowers all too vividly,” he added.
Stracke also believes homeowners will lie about their income, and/or intentionally damage their credit scores to attain eligibility for the loan modification program.
“We find it hard to believe that borrowers who have too much income and/or too high credit scores to qualify for the modification will not find some way to convince their mortgage servicers that they do in fact qualify,” he wrote.
“The incentive to lie, or even to damage one’s own credit score, is too high,” he added.
While the average 30yr fixed mortgage rate is still more than 1% below the long-term highs seen in October, it has been rising slowly and steadily in the new year. Today’s average rate is now as high as it has been in 4 weeks.
That’s the dramatic way to say it, but things aren’t as scary when we consider rates are only about 0.2% off the December lows and that the entire drop was more than 1.4% from the October highs.
Today’s bond market movement was sideways. The change in mortgage rates occurred due to timing of market movements yesterday and today as well as the monthly settlement process for the mortgage backed securities (MBS) that underlie day to day mortgage rate changes.
Bond traders remain focused on Thursday morning’s inflation data via the consumer price index (CPI) as the next big potential flashpoint for rate volatility.
While it’s impossible to predict the future when it comes to financial markets, it’s usually possible to identify the events that have higher potential to cause bigger swings. Other times, volatility strikes on days when it wasn’t entirely expected.
That’s how this past week began. After Monday’s holiday closure, rates jumped higher on Tuesday morning without warning. What would a “warning” have looked like? It could be as simple as the presence of a scheduled economic report with a history of causing a volatile market response. Tuesday had none of those, but it did have a legitimate market mover pulling the strings behind the scenes.
The puppet master in question is a bit esoteric without a quick refresher:
Interest rates are based on bonds.
The Fed sets a target for the shortest-term bonds, but the market trades it out from there.
There are all kinds of bonds. US Treasuries are government bonds. Mortgage backed securities (MBS) are bonds tied to mortgage cash flows. Municipal bonds finance local government operations. Corporate bonds finance various spending/investment needs for large companies.
All these bonds are slightly different in their risk and reward, but they are all part of the same asset class in the eyes of investors. Specifically, bonds are a “fixed income” investment that allow investors to receive a fixed schedule of repayment with interest.
With all that out of the way, the following will hopefully make more sense. Tuesday was the 5th biggest day ever for new corporate bonds being offered for sale. The top 4 days all benefited from extremely large individual bonds from one company. All 4 had at least one offering of $25 billion or more. That made Tuesday all the more notable in that the largest bond was “only” $4.75 billion.
In other words, there was a deluge of new bonds competing for investors’ attention. That means relatively lower demand for other bonds such as MBS. When demand for a bond falls, it results in lower prices, and lower prices mean higher rates.
The market knew that this week would be a healthy one for new corporate bonds, but reality exceeded expectations. The bottom line is that the excess supply caused a bit of weakness across the entire bond market, including the part that dictates mortgage rates.
We also had some good, old-fashioned economic data hit the market on Wednesday, but it didn’t do us any favors either. The ISM Non-Manufacturing Index showed the services sector growing more than expected in August. This includes a separate index that showed higher prices as well. In addition to rising more than expected, both indices give the impression they’re in the process of bouncing after correcting from the “too hot” levels in early 2022.
Stronger economic data and higher prices are two of the biggest enemies of rates. It made Wednesday the worst day of the week for the average mortgage lender. 10yr Treasury yields provide a benchmark for interest rate movement this week and allow us to see more granular detail.
Things calmed down heading into the weekend with rates staying safely below the highs seen at the end of August, but that wasn’t much of a consolation in the bigger picture.
The week ahead brings some high stakes economic data in the form of August’s Consumer Price Index (CPI). This broad inflation metric has been one of the most important sources of influence for the market on any given month over the past few years and this one could be one of the more notable examples.
CPI has been falling in general, but the decline runs the risk of being misleading due to the broad decline in fuel prices that ended 2 months ago. Last month’s data began to show the effects of that fuel price reversal and some analysts think it will be more apparent in next week’s report. This has resulted in a wider range of forecasts than normal and that tends to result in a more volatile market response.
Note the small bounce in “headline” inflation, which includes fuel prices versus “core” inflation which excludes fuel. Like with the ISM data above, some market watchers think the economy has merely corrected from overly hot conditions and that growth/inflation could continue to be more resilient than expected.
To make matters more consequential, it is the “blackout week” for the Fed where members refrain from commenting on monetary policy in the 12 days leading up to a rate announcement. That means the market’s imagination can run a bit wilder than normal when it comes to interpreting the CPI results.
At the end of the day, everyone is trying to get to the same answer: is inflation truly defeated or does policy need to stay tighter to keep inflation from bouncing. The following chart of monthly core inflation shows that we’ve only recently returned to target levels. The market keeps waiting for the Fed to say that the return is sustainable and the Fed keeps saying “we’re not sure yet.”
Let me be contrarian: Get ready, because mortgage rates are going to rise in 2021. Now before you respond, just read the rest as to why.
The Mortgage Bankers Association in its most recent forecast sees two things that stand out. First, 2020 will prove itself to be the second biggest mortgage year in history. Topping $3 trillion will put it only behind 2003 in single family mortgage production history.
Second, the MBA joined the GSEs and other economists who forecast a significant drop in mortgage production in 2021, with most estimating declines in the range of $700 – $800 billion year over year.
Some will try to argue, “but wait, Powell said the Federal Reserve would keep rates low for the foreseeable future! You must be wrong.” There is a difference here. Yes, the Fed will likely keep short rates low, but mortgage rates and some longer-term Treasuries likely won’t enjoy the same ride.
Here are the reasons why upward pressure on mortgage rates could stall the refinance wave and cut overall national originations volume in 2021:
1. The Fed: The Federal reserve is the single biggest buyer of agency mortgage backed securities (MBS) in the world. According to the Urban Institute, “In March the Fed bought $292.2 billion in agency MBS, and April clocked in at $295.1 billion, the largest two months of mortgage purchases ever; and well over 100 percent of gross issuance for each of those two months. After the market stabilized, the Fed slowed its purchases to around $100 billion per month in May, June and July. Fed purchases in July were $104.6 billion, 35 percent of monthly issuance, still sizable from a historical perspective.”
The question is what happens after a covid vaccine and a normalization of economic activity which is expected next year. The Fed is already being very careful not to commit to MBS purchases after the end of this year, a lack of commitment very different to their clear stance on fed funds. If the fed continues to slow or stop, something which is inevitable, the supply imbalance will force rates higher as MBS prices drop in search buyers to take up the excess.
2. The Debt: The national debt is now at 100% of GDP, the highest level since WWII. Per
CBO’s September paper, “By the end of 2020, federal debt held by the public is projected to equal 98% of GDP. The projected budget deficits would boost federal debt to 104% of GDP in 2021, to 107% of GDP (the highest amount in the nation’s history) in 2023, and to 195% of GDP by 2050.”
The CBO’s projections for the U.S. deficits looking forward and the mounting debt load threaten the nation’s ability to do many things, as the majority of spending will be to mandatory expenditures that include interest on the growing debt load. Inflationary pressure will result from the need to finance these deficits through new issuance of treasuries, thus putting upward pressure across the stack of interest rates, a far different outcome than what the Fed may do to keep short rates low.
3. The GSE Capital Rule: The FHFA just closed off the comment window on the proposed capital rule for Fannie and Freddie. This rule is a critical component to FHFA’s plan to release the GSEs from conservatorship. The proposed rule is considered onerous by many with the consensus view stating in comment letters that rates would rise between 20-30 bps. Former Freddie Mac CEO Don Layton, former Arch MI CEO Andrew Reppert, and Fannie Mae each stated the same in their comment letters.
4. The Adverse Market Fee: This arbitrary add-on for most refinance mortgages from the GSEs of 50 bps equates to roughly an increase in rate of .125. This goes into effect on Dec. 1 of this year.
5. Release from Conservatorship: FHFA Director Calabria is working feverishly to release Fannie and Freddie from conservatorship and moving at a pace to lock in as much of this as possible quickly given the risk of an administration change. There have been outcries from MBS investors, including some of the largest buyers.
As reported, in a letter to Mark Calabria, director of the Federal Housing Finance Agency, PIMCO said freeing the companies by executive fiat would be interpreted by investors as an end to the government’s guarantee of the MBS. “That would boost mortgage rates and force some investors to sell the bonds,” the PIMCO executives said. Investors would demand a higher return for the increased risk. “Mortgage rates will increase, homeownership will likely suffer and the national mortgage rate will no longer exist,” the executives wrote.
For those in the mortgage industry, it doesn’t take all of these things to result in the forecasted 700-800 billion drop next year. Frankly just the slowing of MBS purchases and the implementation of the capital rule alone would do it. In fact, MBA’s forecast of the volume decline assumes only the slightest increase in mortgage rates, remaining in the low 3% range next year. In my conversations with economists, the view is that we will end the year with a good first quarter in 2021 simply based on year end overflow.
The second quarter may start off well, but the general sense is that by the third and fourth quarters the market will reflect the impact of coupon burn out and any of these events above beginning to take shape. One thing for certain is that the Fed does not like being in this deep, we saw that following QE activities during the Great Recession.
As MBA’sFratantoni states in his recent Housing Wire article, “2020 has been a banner year for mortgage originators and the millions of households who have benefitted from record-low rates through refinancing. The industry will enjoy this boom for a while longer, but our expectation is that the refi wave is cresting.”
“Make hay while the sun shines” is an old expression. The sun is clearly shining on our industry this year. But it’s important for mortgage banking executives to not misread the statements of Chairman Powell as a commitment to anything more than short rates. The rally you are experiencing this year is due to interventions in the market due to a pandemic recession. Normalization will take out buyers, eliminate the supply “short,” and inflation will ultimately do its thing on rates just enough to cut the market by 25%-30% in 2021 and a bit more in 2022.
Planning ahead for that environment is critically important as market contractions will reduce spreads as well as volume. Thinking about the appropriate right sizing and forward-looking market strategies now will separate the winners from the rest.
There has been a lot of talk lately about the Fed beginning to unwind the $4.5 trillion on its balance sheet.
The news first broke last week when the FOMC minutes revealed it was a topic of discussion at their March meeting, and many experts are saying that the process will likely begin this year.
That could mean a significant shakeup in the mortgage market.
The Fed has been the largest purchaser of Mortgage Backed Securities (MBS) since it entered the mortgage market after the financial crisis in 2008. Right now, it has about $1.75 trillion of holdings in MBS. That’s around 30% of the market, which is a staggering amount for one investor.
Lenders could see slowdown in liquidity
Lenders rely on the capital from the secondary market to create liquidity. That’s because instead of loaning out funds to borrowers and waiting thirty years to get all their money back, they sell mortgages on the secondary market. This frees up money for them to give to borrowers.
Click here to get today’s latest mortgage rates (Aug. 10, 2023).
If one of the biggest players on the market were to leave, that could cause a slowdown as fewer funds are available to lend out. The best scenario would be for various players to step up and fill the void, but a decline in some securities is most likely unavoidable.
Borrowers likely to deal with higher rates
With a decrease in the demand for MBS, prices could go up causing mortgage rates to rise. Mortgage rates were already projected to move higher in the long-term, based on the Fed’s gradual adjustments to the Federal Funds rates, so this news puts extra pressure on those projections. With rates recently falling to 2017 lows, that means anyone who is in the position to take action, should do so sooner rather than later.
Here is what our EVP of Secondary, Marc Kaplowitz had to say about these recent developments:
“The spread between mortgages and treasuries widened post release of FED Minutes and Dudley’s prepared testimony. The market take-away from both was a more aggressive stance than the fixed income markets had expected. Outright sale of mortgages would certainly add pressure to the mortgage sector but there will be a self-limiting component due to the slowdown in prepayment speeds (Fed reinvestment eases -> Rates rise -> Prepays slow -> Fed inherently has less to reinvest).”
Click here to get today’s latest mortgage rates (Aug. 10, 2023).
The next time the FOMC meets is on May 6. There are a handful of speaking engagements from Fed officials before then, but it’s unlikely any greater detail about the unwinding program will be divulged. That means that for now, we wait.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
The average 30-year fixed-rate mortgage fell two basis points from the week prior to 2.88%, according to mortgage rates data released Thursday by Freddie Mac‘s PMMS.
According to Sam Khater, Freddie Mac’s chief economist, the decline provides modest relief to those who are looking to buy homes in a tough market, with scant inventory and mounting home price appreciation.
“The summer swoon in mortgage rates continues as the 30-year fixed-rate mortgage fell for the third consecutive week,” Khater said. “Since their peak at 3.18% in April, mortgage rates have declined by thirty basis points.”
Mortgage rates have been hovering around 3% for several months. Economists and investors are closely watching for any indication that the Federal Reserve may change its position on the tapering of mortgage backed securities and bond purchases.
During testimony to the U.S. House of Representatives Financial Services Committee on Wednesday, Federal Reserve Chair Jerome Powell pushed back at Republican lawmakers’ concerns about volatility in the prices of some goods, including lumber. High inflation, Powell said, is limited to “a small group of goods and services directly tied to the reopening,” and the U.S. central bank’s bond buying will continue until there is substantial progress on jobs.
Increasing Lending and Servicing Capacity – Regardless of Rates
The low-rate environment won’t last forever, and both lenders and servicers need to be able to keep their costs down while managing volume fluctuations once things start to normalize.
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Tapering the U.S. central bank’s $120 billion in monthly bond purchases, is “still a ways off,” Powell said.
“If we continue to make progress on our goals we’ll reduce those purchases,” he said. Powell is scheduled to testify in front of the U.S. Senate Banking Committee Thursday morning.
Since March 2020, the Fed’s asset purchases have been split between $80 billion of U.S. Treasury bonds and $40 billion of mortgage backed securities each month, keeping the cost of long-term borrowing low.
Still, the industry is already anticipating rates rising to a more standard level expected in today’s market. A year ago at this time, the 30-year fixed-rate mortgage averaged 2.98%.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) reported 64% of respondents said it’s a bad time to buy a home, up from 56% last month. Seventy-seven percent of respondents said it’s a good time to sell, up from 67% last month. Year-over-year, the overall index is up 3.2 points.
The low cost of borrowing — despite soaring home prices and a lack of inventory — has also coincided with a spike in mortgage applications. Mortgage applications jumped 16% for the week ending July 9, 2021, according to the latest report from the Mortgage Bankers Association.
Declining mortgage rates are spurring borrowers to refinance, said Joel Kan, MBA associate vice president of economic and industry forecasting.
“Treasury yields have trended lower over the past month as investors remained concerned about the COVID-19 variant and slowing economic growth,” Kan said. “There also may have been a delayed spillover of applications from the previous week, when rates also decreased but there was not much of response in terms of refinance applications.”
Those lower rates may be helping some homebuyers close on their purchases, especially first-time homebuyers, he noted.
The average 30-year fixed-rate mortgage sank 10 basis points to 2.78% for the week ending on July 22, continuing several weeks of declines, according to mortgage rates data released Thursday by Freddie Mac‘s PMMS.
According to Sam Khater, Freddie Mac’s chief economist, concerns about the COVID-19 Delta variant and the recovery from the pandemic are taking their toll on economic growth.
While the economy continues to mend, Treasury yields have decreased, and mortgage rates have followed suit, said Khater. “Unfortunately, many homebuyers are unable to take advantage of low rates due to low inventory and high prices.”
While prospective homebuyers face a tough market, Khater added that declining mortgage rates give homeowners the chance to refinance and reduce their monthly payments.
Mortgage rates have mostly remained below 3% this year, despite predictions that they would return to higher levels earlier. Economists and investors are closely monitoring any indication from the Federal Reserve that it may begin tapering of mortgage backed securities and bond purchases.
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But that is “still a ways off,” Federal Reserve Chair Jerome Powell said at a Congressional hearing last week. The U.S. central bank plans to continue its asset purchases until there is substantial progress on jobs.
That accommodative stance is bolstered by concerns about the Delta variant and the market outlook, an analysis from Goldman Sachs noted this week. The Federal Open Market Committee is scheduled to meet next week.
President Joe Biden also pushed back at concerns over rising inflation during a press conference this week. “No serious economist” is suggesting the economy is headed toward unchecked inflation, he said.
“If we were to ever experience unchecked inflation over the long term that would pose real challenges to our economy,” Biden said, adding that his administration would “remain vigilant about any response that is needed.”
Since March 2020, the Fed’s asset purchases have been split between $80 billion of U.S. Treasury bonds and $40 billion of mortgage backed securities each month, keeping the cost of long-term borrowing low, in turn depressing mortgage rates. A year ago at this time, the 30-year fixed-rate mortgage averaged 3.01%.
Despite the low cost of borrowing, the housing market is showing signs of sluggishness.
Ten-year Treasury yields declined sharply last week, in part due to investor concerns about the spread of COVID variants and their impact on global economic growth, according to a report from the Mortgage Bankers Association.
Mortgage applications for new home purchases decreased 3% from May to June, sliding 23.8% year over year, according to the latest report from the MBA.
New single-family home sales decreased 5% to 704,000 units from 741,000, the trade group found. New home sales also declined slightly, from 68,000 to 66,000 in May. Overall, sales of new homes are down 7% from last year.
Homebuilders have encountered price increases for some building materials and labor shortages have dampened new home sales and increased home price appreciation, according to Joel Kan, MBA associate vice president of economic and industry forecasting. Persistent low inventory is keeping competition for available units high, he added.
In June, the average loan price rose to a record $392,370, according to the MBA.
“In addition to price increases, we are also seeing fewer purchase transactions in the lower price tiers as more of these potential buyers are being priced out of the market, further exerting upward pressure on loan balances,” Kan said.
The average 30-year fixed-rate mortgage increased slightly to 2.80% for the week ending on July 29, halting a streak of weekly declines, according to mortgage rates data released Thursday by Freddie Mac‘s PMMS.
According to Sam Khater, chief economist at Freddie Mac, while there is some uncertainty about the Covid-19 Delta variant, the housing market is still enjoying record low rates.
“As the economy works to get back to its pre-pandemic self, and the fight against Covid-19 variants unfolds, owners and buyers continue to benefit from some of the lowest mortgage rates of all-time,” said Khater.
The 15-year fixed-rate mortgage decreased two basis points from last week, averaging 2.10% for the week ending on July 29.
Mortgage rates have rarely exceeded 3% this year, despite predictions that 2021 would bring a return to higher levels. Economists and investors are closely monitoring any indication from the Federal Reserve that it may begin tapering of mortgage backed securities and bond purchases.
How fine-tuning MSR valuations can help lenders improve decision-making
As rates change and the market shifts to a more purchase-driven origination environment, lenders need to carefully monitor margins and profitability. If we’ve learned anything in the past year, it’s that operational flexibility and accurate servicing valuation are key to lending profitability.
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So far, the Federal Reserve has not indicated it will change its accommodative stance until substantial further progress is made in the labor market.
At a press conference following the Federal Open Market Committee meeting this week, Federal Reserve Chairman Jerome Powell said there was some “ground to cover” in the labor market before tapering its $120 billion in monthly asset purchases.
Since March 2020, the Fed’s asset purchases have been split between $80 billion of U.S. Treasury bonds and $40 billion of mortgage backed securities each month, which keeps the cost of long-term borrowing low. A year ago at this time, the 30-year fixed-rate mortgage averaged 2.99%.
Despite the low cost of borrowing, the housing market is showing signs of sluggishness.
Ten-year Treasury yields decreased sharply last week, according to a report from the Mortgage Bankers Association. Investors are increasingly concerned about the rise in Delta variant cases, and what its economic impact will be, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.
That led to the 30-year fixed mortgage rate declining to its lowest level since February, the trade association reported. 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.01% from 3.11% for the week ending in July 23.
The 15-year mortgage rate also fell to a record low last seen in 1990, declining 10 basis points to 2.36. Those ultra-low rates naturally resulted in a sharp uptick in refinancing activity.
“With over 95% of refinance applications for fixed rate mortgages, borrowers are looking to secure a lower rate for the life of their loan,” Kan said Wednesday.
But the low rates made little difference in the purchase market, which is still grappling with record home prices. The purchase index decreased to for the second week in a row to its lowest level since May 2020, continuing its third month of year-over-year declines.
The purchase index was down 1% from the week prior, and down 18% compared with last year.
The Federal Housing Finance Agency also reported that May home prices were 18% higher than a year ago. The Mountain Region, which includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming saw the sharpest yearly increases. Home prices in those states grew 23.2%, per the FHFA report.
“That continues a seven-month trend of unprecedented home-price growth,” Kan said. “Potential buyers continue to be put off by extremely high home prices and increased competition.”
The average 30-year-fixed mortgage continued to hover around the 2.86% mark for the week ending Sept. 16, according to Freddie Mac‘s latest PMMS survey. Mortgage rates have been around that mark for roughly two months, leading economists at Freddie Mac to liken it to “Groundhog Day.”
“The holding pattern in rates reflects the markets’ view that the prospects for the economy have dimmed somewhat due to the rebound in new COVID cases,” said Sam Khater, Freddie Mac’s chief economist. “While our collective attention is on the pandemic, fundamental changes in the economy are occurring, such as increased migration, the extended continuation of remote work, increased use of automation, and the focus on a more energy efficient and resilient economy. These factors will likely lead to significant investment and new post-pandemic economic models that will spur economic growth.”
According to Freddie Mac, the 30-year-fixed-rate mortgage was down slightly from last week’s 2.88% (with an average of 0.7 points). It averaged about 2.87% a year ago. The 15-year-fixed-rate mortgage averaged 2.12% last week, a slight decline from the prior week’s 2.19%. A year ago, the average 15-year-fixed-rate mortgage was 2.35%.
Mortgage rates have struggled to reach 3% for much of 2021, despite widespread expectations they’d be in the mid-3s or higher by the third quarter. The Federal Reserve continues to make monthly asset purchases, driving the cost of lending down.
Although the central bank previously signaled that by November it would at least begin to taper its $120 billion in monthly purchases of U.S. Treasury bonds and mortgage backed securities, the rise in COVID Delta variant cases has cast made that scenario much less likely.
Lenders – Now is the time to prioritize lead generation
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Mortgage loan application volume rebounded from the week prior, increasing by 0.3% for the week ending Sept. 10, according to the Mortgage Bankers Association’s weekly report. The increase in application volume was largely driven by purchase mortgage activity, which grew by 8% from the week prior, the MBA said.
Not surprisingly, the refi index has continued to slip, dipping 3% from the previous week, the MBA noted.
Joel Kan, associate vice president of economic and industry forecasting, said that purchase mortgage application volume is currently at its highest level since April 2021.
“Compared to the same week last September, which was right in the middle of a significant upswing in home purchases, applications were down 11%– the smallest year-over-year decline in 14 weeks,” Kan said.
He also noted that volume for both conventional and government purchase applications increased last week, as did the average loan size for a purchase application, rising to $396,800.
The average 30-year-fixed rate mortgage climbed to 3.09% during the week ending Oct. 21, rising from 3.05% the week prior, according to the latest Freddie Mac PMMS Mortgage Survey. A year ago, the 30-year fixed-rate mortgage averaged 2.80%. Most economists believe they’ll continue to climb.
“Mortgage rates continued to rise this week due to the trajectory of both the economy and the pandemic,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
The rise in mortgage rates moved in concert with the 10-year Treasury yield, which reached 1.65 yesterday, its highest rate since May.
The bond market for months has been preparing for the Federal Reserve to begin tapering its $120 billion in monthly asset purchases, which will send rates further north.
According to the minutes from the central bank’s September meeting, that tapering is expected to come as soon as mid-November. The target date to end the purchases – which includes $80 billion in Treasury securities and $40 billion in mortgage backed securities – would be mid-2022. Observers believe the central bank will also raise short-term interest rates in the coming months.
Lenders – Now is the time to prioritize lead generation
HousingWire Editor-in-Chief Sarah Wheeler and Deluxe Senior Business Development Executive Mark McGuinn discuss the challenges lenders are facing to optimize lead generation as mortgage rates fluctuate.
Presented by: Deluxe
The refi mortgage market, which is more rate-sensitive than the purchase market, is expected to suffer. Refinances are forecast to fall 14% to $860 billion in 2022, and economists at the Mortgage Bankers Association have predicted that mortgage rates will climb to 4% by the end of next year.
Rising mortgage rates and paltry inventory will make things harder for homebuyers as well.
“Even as the availability of existing homes is improving, prices remain high due to homebuyer demand and limitations on housing starts and permits resulting from the ongoing labor and material shortages,” Khater said. “Despite these countervailing forces, we expect the housing market to remain strong as we head into the end of the year.”
The MBA has forecast purchase mortgage volume to hit a record $1.73 trillion in 2022, up 9% from the projected 2021 total. The expected record is largely due to the rise in home prices, and not necessarily the raw number of home sales. Supply chain issues for homebuilders are still expected to be present in 2022, though a number of housing economists believe they’ll ease up somewhat.
Rising mortgage rates – up about 20 basis points in the past month alone – have already begun to sap demand. Mortgage application activity dropped 6.3% for the week ending Oct. 15, according to the most recent MBA survey.
The 15-year-fixed-rate mortgage averaged 2.33% last week, up from 2.30% the week prior. A year ago at this time, it averaged 2.33%.