Mortgage rates rose for a second week, according to Freddie Mac

January 27, 2023,

Mortgage rates increased for the second week in a row as its movements diverged from the benchmark 10-year Treasury, the Freddie Mac Primary Mortgage Market Survey found.

The 30-year fixed-rate mortgage rate increased an average of 6 basis points, to 6.48% as of Jan. 5, from 6.42% the prior week. At the same time, the 15-year FRM rose 5 basis points to 5.73% from 5.68%.

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For the same week last year, the 30-year FRM averaged 3.22%, while the 15-year loan was 2.43%.

However, the 10-year Treasury yield — which mortgage rates normally trend in line with — fell to a 3.71% close on Jan. 4 from 3.89% seven days prior.

But Freddie Mac's report, which is derived from applications submitted to its automated underwriting system, conflicts with other tools measuring mortgage interest rate shifts. Zillow's rate tracker, based on offers made through the site, reported the 30-year FRM at 6.2% on Jan. 5, down from 6.25% one week prior. Compared with Jan. 4, the 30-year FRM was up from 6.18%. The Black Knight Optimal Blue product and pricing engine also had the 30-year conforming mortgage averaging 6.462% on Jan. 4, down from 6.508% for Dec. 28 and 6.528% the following day.

"More signs of a slowing economy and softening inflationary pressures pushed mortgage rates down this week," said Orphe Divounguy, a Zillow senior economist in a statement issued Wednesday night. "Long term interest rates reflect both current and future economic growth and inflation, so data from France released this week — which showed slowing inflation on the other side of the pond — was welcome news for markets and could be a clue that slowing inflation in the U.S. in 2023 is more likely."

However, stronger than expected jobs data released Thursday morning from ADP, has driven expectations among investors that the Federal Reserve may not be finished hiking short-term interest rates in an effort to slow the U.S. economy.

Earlier this week, the ISM manufacturing index was reported at its weakest reading since May 2020, Divounguy said.

"With supply chains on the mend, weakening demand is putting downward pressure on goods prices," Divounguy continued. "However, despite these signals, the overall inflation situation remains cloudy and the market will be keenly anticipating next week's December CPI report — a report that will almost certainly influence mortgage rates, either up or down."

The Mortgage Bankers Association's Weekly Application Survey reported activity at its lowest level in 26 years.

"While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023," said Sam Khater, Freddie Mac chief economist, in a press release. "Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tailwind of millennial renters will provide support to the purchase market."

Furthermore, current buyers at today's interest rates will have the opportunity to refinance, Khater added.

But taking a more bearish view of the housing market for 2023 is HouseCanary CEO Jeremy Sicklick.

"As we closed the year, December brought another month of double-digit [home sales] contract volume decreases that triggered an additional month of price drops," Sicklick said in a press release. "With the most recent Fed minutes indicating rates to remain high throughout 2023, it is expected that housing market activity will continue to cool."

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