Mortgage rates spike following Fed comments

The 30-year fixed-rate mortgage jumped by almost a quarter of a percent, with economists now hinting that the likelihood of further increases could finally slow the pace of home sales.

Rates climbed across all categories, with the 30-year average coming in at 3.45% for the weekly period ending Jan. 13, according to the Freddie Mac Primary Mortgage Market Survey. Seven days earlier, the 30-year mortgage stood 23 basis points lower at 3.22%, while in the same time period one year ago, the rate averaged 2.79%, coming off a record low.

The swift rise was “was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains,” according to Sam Khater, Freddie Mac’s chief economist.

Improving jobs data, as well as inflation, which grew on an annual basis of 7% in December — a 40-year record — point to signs that rates are set to rise higher after increasing at a more modest pace in late December into the new year.

“With the latest unemployment rate, many market participants believe this gives the Fed more room to focus on addressing inflation concerns as labor markets are near full employment levels,” said Paul Thomas, Zillow vice president of capital markets, in a research blog post.

The news has the potential to throw cold water on a hot housing market and record high prices that marked 2021, according to Khater. The 30-year rate spent much of last year hovering at 3% or below. “The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future,” he said in a press release.

Additional comments from the central bank also appear to portend upward rate movement, with the Fed signaling they plan to shrink their balance sheet faster than expected, as well as increase the federal funds rate.

“Markets now appear to be anticipating an initial Fed rate hike in March, with a likely cumulative rate increase of 75-100 basis points 2022,” added Thomas.

In December, the Mortgage Bankers Association anticipated mortgage rates would hit 4% by the end of the year, with the purchase market still strong, if not at the same levels of 2021.

While the jump was not as large as for the 30-year mortgage, the 15-year fixed-rate average hit its highest point since summer 2020, rising 19 basis points to 2.62%, compared to 2.43% a week earlier. One year ago, the 15-year average sat at 2.23%.

And after averaging 2.41% for two consecutive weeks, the 5-year Treasury-indexed adjustable-rate mortgage also headed up, climbing to 2.57%. In the same week of 2021, the 5-year ARM stood at 3.12%.