Mortgage rates rise by just 2 basis points

Mortgage rates rose by just two basis points this week, even as the 10-year Treasury yield finally broke through the 4% mark on a sustained basis last Friday due to continued uncertainty.

The 10-year yield, the benchmark for 30-year fixed rate mortgages, had been flirting around or just below the 4% level for several weeks. Between Oct. 13 and Oct. 19, the yield 18 bps to 4.13%.

But the 30-year FRM rose to an average 6.94% for the week of Oct. 20, up from 6.92% for the week ended Oct. 13, according to the Freddie Mac Primary Mortgage Market Survey. The pace of increases has slowed, especially compared with last week's 26 bps, but troubles remain for the housing market, the GSE said.

"The 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand," said Sam Khater, Freddie Mac's chief economist, in a press release. "Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down."

At this time last year, the 30-year FRM was at 3.09%.

Zillow reported a much larger increase in the 30-year FRM from last week as of Thursday morning, up 15 bps to 6.87%; that is also a 6 bp increase from Wednesday.

"Price indexes for both producers (PPI) and consumers (CPI) released last week forced markets to adjust for the likelihood of further Fed actions to control inflation, now pricing in a 75-basis point rate hike at the November FOMC meeting," said Paul Thomas, vice president of Zillow Mortgage Capital Markets, in a statement issued Wednesday night. "Markets continue to be extremely volatile in reaction to economic data and geopolitical activity, particularly in the United Kingdom." Regarding that last point and subsequent to this statement, Liz Truss resigned as Prime Minister on Thursday.

It is probable that mortgage rates could return to double-digit levels next year, an outlook report for the housing finance market from Christopher Whalen of Whalen Global Advisors stated. Whalen's comment came following an examination of trends in mortgage-backed securities pricing.

"Note that the 6% MBS for all three agencies is barely above par," Whalen wrote. "Benchmark Treasury securities are rising in yield as investor expectations for lower rate 'pivot' in 2023 are dashed."

The last time mortgage rates were above 10% was for the week of Nov. 16, 1990, according to the Freddie Mac survey.

Meanwhile, the near term outlook hinges on how the market reacts to a quiet period when it comes to information dissemination.

"With relatively light data releases this week, investors will be evaluating comments from Federal Reserve Bank presidents to gain further insight into likely Fed actions at coming meetings," Zillow's Thomas said.

The 15-year FRM had a much larger increase than the 30-year, to an average of 6.23%, a gain of 14 bps from last week's 6.09%. A year ago, the 15-year FRM averaged 2.33%.

However, the 5-year Treasury-indexed hybrid adjustable-rate mortgage dropped 10 bps from a week ago to an average of 5.71% from 5.81%. But for this week last year, it averaged 2.54%.