Mortgage rates soar on jobs, inflation

After a one week's respite, mortgage rates again soared upward on inflation news, rising 26 basis points as the 10-year Treasury yield once again tested — and on Thursday morning finally broke through — the 4% mark, Freddie Mac reported.

The 30-year fixed-rate loan averaged 6.92% as of Oct. 13, up from last week when it averaged 6.66%, according to the government-sponsored enterprises' Primary Mortgage Market Survey. A year ago at this time, it averaged 3.05%.

"Rates resumed their record-setting climb this week, with the 30-year fixed-rate mortgage reaching its highest level since April of 2002," said Sam Khater, Freddie Mac chief economist, in a press release. "We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers' balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously."

September's Consumer Price Index report on Thursday morning rose 8.2% on a year-over-year basis, to a 40-year high, increasing the likelihood of another large increase in short-term rates by the Federal Open Market Committee. That pushed the 10-year over 4% to a high of 4.08% at one point that morning, although by 10:20 a.m. Eastern Time it had backed down to 3.98%.

"Mortgage rates pressed higher again this week, reaching 20-year highs as markets digested economic developments on both sides of the Atlantic," Matthew Speakman, Zillow senior economist, said in a statement issued Wednesday night before the CPI release. He pointed to the turmoil surrounding British fiscal policy as recently installed Prime Minister Liz Truss had to backtrack on a tax initiative; that reversal continues to concern investors, affecting bond yields.

"The subsequent reaction by U.S. Treasuries — which tend to influence mortgage rate movements — wasn't as pronounced as it has been in recent weeks, but the confusion was still enough to place more upward pressure on mortgage rates," Speakman said.

Last Friday's strong jobs report also contributed to upward pressure on rates this week.

"While the September jobs report showed hiring activity continued its gradual cool down, the main takeaways still compared favorably to expectations and historic norms," Speakman continued. "The report was encouraging enough to prompt a selloff from investors who viewed the news as more ammunition for the Fed to continue its plans to tighten monetary policy in an effort to combat inflation."

Besides the CPI report, Speakman said other inflation measures are expected to be released shortly. "Evidence of continued price pressures will almost certainly send mortgage rates even higher from their already lofty levels," he said.

Mortgage Bankers Association President and CEO Bob Broeksmit pointed to results in the group's Weekly Application Survey, whose own rate measurements were at a 16-year high, and Mortgage Credit Availability Index, which indicated continued tightening by lenders, in a Thursday morning statement issued before the Freddie Mac release.

"We have seen credit tighten as both lenders and borrowers grapple with ongoing economic uncertainty and affordability challenges," Broeksmit said. "Despite strong wage and job growth in September, prospective homebuyers remain reluctant to jump into the housing market."

However, a Zillow survey found that first time home buyers are now making up a larger share of the market — albeit a smaller pie  —  at 45%, versus 37% one year ago.

"First-time buyers now appear to be making relative gains as high mortgage interest rates disproportionately encourage current homeowners to stay put," said Zillow population scientist Manny Garcia in a press release. "The flow of homes into the market is slowing, suggesting homeowners are likely comparing their current low mortgage rate to today's rates and deciding not to move. While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they're comparing a monthly mortgage payment to what they're paying in rent."

Freddie Mac's Khater put it succinctly: "The next several months will undoubtedly be important for the economy and the housing market."

As for the other rates tracked by Freddie Mac, the 15-year FRM averaged 6.09% up 19 bps from last week when it averaged 5.9%. A year ago at this time, it averaged 2.3%.

And the 5-year Treasury-indexed hybrid adjustable-rate mortgage soared 45 bps to an average of 5.81%, compared with 5.36% last week. It averaged 2.55% one year ago.