Mortgage rates

The 30-year fixed pushed up another 8 basis points this week as the markets are speculating about what the Federal Reserve will do next.

The Federal Reserve chairman took an unexpectedly aggressive posture following last month's step down in the pace of hikes in testimony before Congress on Tuesday,

"The committee is strongly committed to returning inflation to its 2% objective," the Fed said in its semi-annual report to Congress released Friday.

The increase reflects the rise in the 10-year Treasury yield, which is back above 4% for the first time since that month.

But even if plowing back into Treasuries proves to be a winning trade, sticking with it won't be for the faint of heart. 

Buyer affordability has decreased by almost 22% in the past year, according to the Mortgage Bankers Association.

Persistent inflation concerns drove the 30-year average up 41 basis points this month.

U.S. government bonds slid across the curve, with the 10-year rate heading for the highest close since Nov. 9.

Investors are concerned that the Fed could raise rates 50 basis points at its next meeting and are pricing that risk into the 10-year Treasury.

But with rates turning back up this past week, activity could fall in February, Black Knight Optimal Blue said.

Both Zillow and Black Knight Optimal Blue recorded significant increases, but the Freddie Mac survey only reported a 3-basis-point rise.

More than half of borrowers paid 0.5 points or more to cut their interest rate for the life of the loan, while just 3% chose the short-term option, Black Knight said.

Since breaking above 7% in November, the 30-year fixed is now down nearly a full percentage point, Freddie Mac said.

The Federal Reserve slowed its drive to rein in inflation and said further interest-rate hikes are in store as officials debate when to end their most aggressive tightening of credit in four decades.

Despite 2022's slew of interest-rate hikes from Chair Powell and colleagues, financial conditions are the loosest since last February as investors bet fading inflation will allow the central bank to soon cease raising borrowing costs and then cut them later this year.

But several recent news developments are creating the perception that the risk of a recession is on the wane and that could end the downward pressure on rates.

The U.S. economy expanded at a healthy pace in the fourth quarter, though an extended salvo of Federal Reserve interest-rate hikes is seen jeopardizing growth prospects this year.

The market is signaling that a Federal Reserve policy rate peak short of 5% will be enough to cause a recession, requiring rate cuts totaling half a point during the second half of the year.

Federal Reserve Bank of New York President John Williams said officials have not completed their aggressive tightening campaign to reduce stubborn price pressures.

Generally positive news about the U.S. economy helped push rates lower, but worries about Congressional infighting over the debt ceiling could reverse the trend, Freddie Mac and Zillow said.