Mortgage rates up to highest point since 2008

Mortgage rates surged 27 basis points this week to levels last seen in the fall of 2008, Freddie Mac said. At the same time, the benchmark 10-year Treasury rose to its highest level since 2011 as investors worried about inflation.

The 30-year fixed-rate mortgage averaged 6.29% for the seven days period ended Sept. 22, up from last week when it averaged 6.02%, according to the Freddie Mac Primary Mortgage Market Survey. A year ago at this time, the 30-year FRM averaged 2.88%.

It is the highest the 30-year FRM has reached since the week of Oct. 30, 2008, when it peaked at 6.46%.

Meanwhile, the 15-year fixed-rate mortgage averaged 5.44, up 13 basis points from last week's 5.21%, while a year ago, it was 2.15%.

And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.97% compared with 4.93% the previous week and 2.43% for the same week in 2021.

"The big driver was the CPI data release, which showed that inflation is not slowing as expected and likely requires more rate increases from the Federal Reserve," said Paul Thomas, vice president, Zillow Home Loans, in a statement. "In addition, jobless claims showed a persistently tight labor market, which could drive up costs of goods and services as wages increase."

The 10-year Treasury opened Thursday morning at 3.55% and by 9:45 AM was up to 3.67%, compared with its Wednesday close at 3.51%. The last time the yield was at 3.5% was in April 2011.

The over 300 basis point rise in rates over the past year is the largest increase over a trailing 12 month period since the early 1980s, Keefe, Bruyette & Woods analyst Bose George wrote in a report issued after the Federal Open Market Committee's actions on Wednesday raising short-term rates 75 bps.

"This creates a very challenging environment for volume-sensitive businesses such as mortgage originators and title insurers," George said. "Given the magnitude of the move in rates, we think there could be downside to current estimates for industry volumes in 2023."

The uncertainty about inflation, how the Fed will manage its balance sheet and overall monetary policy is resulting in elevated interest rate volatility and wider mortgage-backed securities spreads, George said. Besides the 10-year Treasury yield, MBS pricing is another factor in setting mortgage rates.

Yet the mortgage industry did see some good news this week, in the results of the Mortgage Bankers Association's weekly applications survey.

"Despite these higher rates, mortgage applications increased last week for the first time in six weeks, with gains in both purchase and refinance activity," Bob Broeksmit, the group's president and CEO said in a statement. "MBA expects homebuyer demand to return, but with rates double what they were last year, the typical mortgage applicant's monthly payment is $456 more than in January."

Broeksmit was referring to the MBA's Purchase Application Payment Index, which found the national median payment was $1,839 for August, compared with $1,844 in July and $1,383 during January.

"Impacted by higher rates, house prices are softening, and home sales have decreased," Freddie Mac Chief Economist Sam Khater said in the commentary on the PMMS report. "But despite this decrease in sales, the number of homes for sale remains well below normal levels."

Peter Earle, an economist for the American Institute for Economic Research, said fewer potential sellers of existing homes will decide to list, providing a boost to construction.

But construction costs have risen due to inflation, and that resulted in lower permitting activity.

"The housing market seems to be entering a recessionary phase in tandem with the broader contraction in the U.S. GDP throughout the first half of 2022," Earle said. "How bad things get in both housing and the U.S. economy hinges pivotally on what the Fed does over the year 12 months."

Zillow provided a shorter term outlook. "Markets will now focus on jobless claims later this week and look for any further direction on Federal Reserve activity when Fed Chair Powell speaks on Friday," Thomas said.