Mortgage rates move up as markets warily watch Fed

Fixed-rate mortgages increased for the fourth week in a row, as markets continue to make moves in response to central bank policy.

The 30-year mortgage averaged 3.56% for the weekly period ending Jan. 20, according to the Freddie Mac Primary Mortgage Market Survey. Seven days earlier, the average came in at 3.45%, while in the same time frame a year ago, it had landed at 2.77%.

“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose, and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” said Sam Khater, Freddie Mac’s chief economist, in a press release.

Investors and economists have increasingly looked toward the Federal Reserve for guidance over the past month, with market reactions to central bank announcements underlying much of the current upswing. The 30-year interest rate has jumped by over 50 basis points since mid-December.

“Given the increasingly endemic nature of omicron, continued indicators of economic strength in certain areas (i.e. income growth, job numbers) and the release of more hawkish Fed rhetoric in their January release, the Fed is now the primary driving factor in rates,” said Robert Heck, vice president of mortgage at online marketplace Morty, in a statement to National Mortgage News.

Rising prices and the current labor outlook make further upward rate movement very likely, according to Zillow’s vice president of capital markets, Paul Thomas.

“This data supports market expectations that the Federal Reserve will begin to move early in 2022 to address inflation and potentially accelerate asset purchase tapering and balance sheet runoff,” he said in a research blog. Next week’s releases of fourth-quarter and 2021 gross domestic product, as well as a meeting of the Federal Open Market Committee have the potential to further influence rates, he added.

But the quick and sudden volatility currently underway typically leads credit products to underperform on the secondary market, Heck noted, “So there is the possibility that mortgage rates might level off if the bond market becomes range bound in the short term.” Volatility is expected to continue throughout much of the year, making predictions about where rates ultimately end more challenging, he added.

Just as the 30-year rate has recently spiked, the 15-year fixed mortgage has moved in tandem, jumping another 17 basis points week over week to average 2.79%. One week earlier, the 15-year average stood at 2.62%, while a year ago, it came in at 2.21%.

The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.6%, up from 2.57% a week earlier. For the second week in a row, the average ARM fell below the 15-year rate. The current ARM is below its level from the same week of 2021 when the 5-year ARM sat at 2.8%.

“Fifteen-year rates have risen above ARM rates for the first time in a while, driven by illiquidity in the secondary market for ARMs and that they tend to lag larger rate shifts since they’re largely a bank portfolio product,” Heck said.