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Mortgage Rates Move Higher with More to Come

Mortgage rates were on the rise again last week, with the refinance fixed rate average for 30-year mortgages rising from 4.04% to 4.24% in the week, with 15-year fixed and 10-year fixed rates rising 0.12 and 0.14 percentage points to 3.52% and 3.48% respectively.

For prospective home buyers, things have certainly deteriorated in recent weeks, with the average 30-year fixed mortgage rates hovering at about 4.5%, the highest rate in 4-years.

The shift in the interest rate environment has been a rapid one, leaving some of those on the market now have to lower expectations and purchase prices, while others have been taken off the ladder altogether, the uptick in rates leaving some unable to qualify for a mortgage.

For U.S homeowners, the good news will be the fact that the U.S economy is not only chugging along, but labor market conditions are also continuing to tighten, with skilled labor shortages now beginning to drive wages that grew at the fastest pace in 8 years in January.

U.S 10-year Treasury yields have soared, driving mortgage rates up and, while wage growth is on the rise, a continued upward move in mortgage rates will offset some of the upsides for those that didn’t refinance existing homes in December, when rates were certainly more favourable than they are today and likely to be tomorrow.

Adding to the upside for yields and ultimately rise in mortgage rates is an expectation that the FED will not only lift rates three times this year but also consider a 4th rate hike, which had certainly not been priced in at the turn of the year.

Recent FOMC member commentary has suggested that even the most dovish voting members of the FOMC are beginning to shift on their outlook for rates. FOCM member Kashkari, who had voted against each of last year’s rate hikes, is one to have taken a more hawkish stance on policy, acknowledging that inflationary pressures are beginning to build.

While mortgage applications had been on an upward trend at the end of last year and in early to mid-January, applications slipped by 2.6% in the week ending 26th January, with refinance applications falling 3% seasonally adjusted. On an unadjusted basis, however, applications were up 15% from the previous week and by 10% from the same week in 2017.

The dip at the end of January may be a temporary one however, with rising wage growth and the prospects of higher mortgage rates in the coming months expected to convince more homeowners of a need to refinance, while home buyers who continue to qualify will be looking to get moving on purchases before average rates begin nudging towards 5.00% levels

Economic data out of the U.S may be on the lighter side this week, but there will be some FOMC member commentary to influence yields and market sentiment towards FED monetary policy, the combination of which could deliver more bad news from a mortgage rate perspective, with President Trump and talk of an infrastructure spending plan also there to consider.