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U.S Mortgage Rates Continue to Hold Above the 3% Mark in Spite of Omicron

Mortgage rates rose for just the 2nd time in 5-weeks after having held steady in the week prior.

A modest increase ensured that 30-year fixed rates continued to sit above the 3% mark after the Thanksgiving holidays.

In the week ending 2nd December, 30-year fixed rates rose by 1 basis point to 3.11%.

Compared to this time last year, 30-year fixed rates were up by 40 basis points.

30-year fixed rates were still down by 183 basis points, however, since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a busy 1st half of the week, with economic data and monetary policy in focus.

On the economic data front, the stats were mixed in the early part of the week.

In November, the CB Consumer Confidence Index fell from 111.6 to 109.5, with inflation and COVID-19 weighing.

Mid-week, ADP nonfarm employment change and manufacturing sector PMIs were positive, however.

For November, the ADP reported a 534k increase in nonfarm payrolls after having risen by 570k in October.

According to the ISM survey, the manufacturing PMI rose from 60.8 to 61.1.

Early in the week, FED Chair Powell also delivered 2-days of testimony on Capitol Hill. Powell talked of the need to discuss accelerating the tapering of bond purchases at the next FOMC meeting. The FED Chair also said that the FED should end the use of transitory when referencing the current spike in inflation.

While the stats and FED Chair Powell’s comments were supportive of a pickup in yields, concerns over COVID-19 tempered a breakout.

Uncertainty over the efficacy of existing vaccines against the new Omicron strain weighed on market risk appetite in the week.

Freddie Mac Rates

The weekly average rates for new mortgages as of 2nd December were quoted by Freddie Mac to be:

  • 30-year fixed rates rose by 1 basis point to 3.11% in the week. This time last year, rates had stood at 2.71%. The average fee fell from 0.7 points to 0.6 points.
  • 15-year fixed decreased by 3 basis points to 2.39% in the week. Rates were up by 13 basis points from 2.26% a year ago. The average fee decreased from 0.7 points to 0.6 points.
  • 5-year fixed rates rose by 2 basis point to 2.49%. Rates were down by 37 points from 3.86% a year ago. The average fee remained unchanged at 0.3 points.

According to Freddie Mac,

  • Mortgage rates remained stable notwithstanding volatility in the financial markets.
  • The consistency of rates in the face of changes in the economy is primarily due to the evolution of the pandemic, which lingers and continues to pose uncertainty.
  • This low mortgage rate environment offers favorable conditions for refinancing.

Mortgage Bankers’ Association Rates

For the week ending 26th November, the rates were:

  • Average interest rates for 30-year fixed with conforming loan balances increased from 3.24% to 3.31%. Points increased from 0.36 to 0.43 (incl. origination fee) for 80% LTV loans.
  • Average 30-year fixed mortgage rates backed by FHA rose from 3.27% to 3.42%. Points increased from 0.34 to 0.35 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances decreased from 3.28% to 3.27%. Points rose from 0.26 to 0.35 (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, decreased by 7.2% in the week ending 26th November. In the previous week, the index had increased by 1.8%.

The Refinance Index slid by 15% and was 41% lower than the same week one year ago. In the week prior, index had increased by 0.4%.

The refinance share of mortgage activity decreased from 63.1% to 59.4%. In the previous week, the share had increased from 62.9% to 63.1%.

According to the MBA,

  • Mortgage rates rose for the 3rd week in a row, reducing the refinance incentive for many borrowers.
  • The 30-year fixed rate hit 3.31%, the highest level since April, leading to the slide in refinance applications.
  • Over the past 3-weeks, rates are up 15 basis points and refinance activity has declined over 18%.
  • Despite higher mortgage rates, purchase applications had a strong week.
  • As home-price appreciation continues at a double-digit pace, buyers of newer, pricier homes continue to dominate purchase activity, while the share of first-time buyer activity remains depressed.

For the week ahead

It’s a quiet first half of the week on the U.S economic calendar.

On Tuesday, nonfarm productivity and unit labor costs will be in focus alongside trade data. The numbers are unlikely to have a material impact on 10-year Treasury yields and mortgage rates, however.

JOLT’s job openings on Wednesday, will likely garner greater interest following disappointing NFP numbers from last Friday.

Away from the economic calendar, however, COVID-19 news updates will continue to influence.