Mortgage rates slip under 7%, but more increases on the horizon

Mortgage rates slipped back under the 7% mark this week, Freddie Mac reported, as the bond market likely took a pause while waiting for the Federal Open Market Committee’s 75-basis-point increase in short-term rates.

The government-sponsored enterprise’s Primary Mortgage Market Survey found the 30-year fixed-rate loan fell 13 basis points for the week ending Nov. 3, to 6.95% from 7.08% for the prior seven day period. In this same week last year, the 30-year FRM was at 3.09%.

“Unsure buyers navigating an unpredictable landscape keeps demand declining, while other potential buyers remain sidelined from an affordability standpoint,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “Yesterday’s interest rate hike by the Federal Reserve will certainly inject additional lead into the heels of the housing market.”

Zillow’s rate tracker found the 30-year FRM increased 3 basis points to 6.89% on Thursday from Wednesday, following the FOMC announcement. Compared to the prior week, it was up 7 basis points, “a period of relative calm,” Zillow Home Loans Senior Economist Matthew Speakman said in a statement issued Wednesday afternoon. But he is expecting more pronounced movements in mortgage rates in the near-term.

“After rising strongly and consistently to 20-year highs earlier in October, rates came back down in recent weeks, indicating that investors landed at a point in which they believed expectations for key economic data and the Fed’s plans were sufficiently ‘priced-in,'” Speakman said. 

“But this serene stretch will almost certainly end in the days ahead, as said insights into the state of the economy begin to arrive.”

That was seen in the 10-year Treasury yield, one of the indicators for 30-year FRM pricing, which increased 10 basis points to 4.16% as of 10:10 a.m. Eastern time on Thursday.

“Further clouding the picture for investors are the upcoming release of Friday’s October jobs report and next week’s reading on inflation — two reports that should shed even more light on the economy’s current and future state,” Speakman said. “All told, the calm waters on which mortgage rates have recently sailed appear likely to get choppier.”

The Fed looks like it is nearing the end of its rate-hike cycle, with December as the last increase. Louis Navellier, chief investment officer at his eponymous company, said in a commentary.

“The FOMC statement was much more dovish than we could have ever imagined,” Navellier said. “Specifically, the Fed is going to evaluate how much they should raise in the future, taking into account that when they hike rates, there is a lag in the economic data.”

In a separate commentary, Navellier now expects a 50-basis-point increase from the FOMC in December.

But Michelle Raneri, vice president of U.S. research and consulting at TransUnion, is far more certain future hikes are on the way, based on statements Chairman Jay Powell made that might seem to conflict with the FOMC statement.

This latest hike reinforced the notion that the Federal Reserve remains committed to increases until excess inflation abates.

“In the mortgage market, consumers who may otherwise be considering buying a home may choose to continue to hold onto their down payments, waiting to see if interest rates and/or home prices decline in the not-too-distant future,” Raneri said in a statement. “For those consumers who do purchase a home, adjustable-rate mortgages may continue to be more popular among consumers seeking lower monthly payments in the short term.”

Housing has been an inflation hedge for nearly two-thirds of American families, as many hold low interest rate mortgages, added Odeta Kushi, deputy chief economist at First American Financial.

“Combined with a strong labor market, consumers are feeling confident enough to continue spending,” Kushi said, adding that while housing is slowing, other parts of the U.S. economy have yet to follow suit.

 “The Fed will likely be watching for sustained, data-driven signs of cooling in the labor market, and specifically wage growth, before it eases the pace of rate hikes,” Kushi said.

The Mortgage Bankers Association reiterated its position that the FOMC will raise rates another 75 basis points at the next meeting, but will pause throughout 2023. “The volatility seen in mortgage rates should subside once inflation begins to slow and the peak rate for this hiking cycle comes into view,” Mike Fratantoni, chief economist, said in a statement.

A consumer watchdog group attacked the Fed’s actions. “A chorus of economic experts have warned hiking interest rates again is a recipe for millions of Americans receiving pink slips, yet the Fed has decided to triple down on what is not working,” said Liz Zelnick, spokesperson for Accountable.US, in a statement. “Throughout the pandemic, the Fed should have been acting as stewards of the fragile economic recovery but instead have prioritized demands from big banks, hedge funds and other Wall Street special interests at the great expense of average working families.”

The good news for those concerned about rate movements is that primary and secondary market mortgage spreads have found a level of support at current levels, although uncertainty lingers as they remain wide, a report from Keefe, Bruyette & Woods analyst Bose George said.

“We think that interest rate volatility is a large driver of the dynamics in the mortgage market,” George said. “Once rate volatility stabilizes, we think mortgage spreads should follow suit.”

While the other rates tracked by Freddie Mac also declined on a week-to-week basis, the drop was much smaller.

The 15-year fixed-rate mortgage averaged 6.29%, down from last week when it averaged 6.36%. A year ago at this time, it averaged 2.35%.

Meanwhile, the 5-year Treasury-indexed hybrid ARM dropped just 1 basis point, to 5.95% from the prior week. For this same week in 2021, the 5-year ARM averaged 2.54%.