Optimism spread across the mortgage industry at the start of 2023. Signs that the disinflationary process was working raised hopes that the Federal Reserve may stop the federal funds rate hikes sooner rather than later. Mortgage rates also dropped about 30 basis points in January, hitting the lowest level since September 2022.
But February brought a dose of reality back to the markets. On February 3, the Bureau of Labor Statistics report showed the total nonfarm payroll employment rose by 517,000 in January, a higher uptick than expected.
And, this week, Fed Chairman Jerome Powell said there’s “a long way to go” as we are at the “very early stages of disinflation.”
“If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in,” Powell said at the Economic Club of Washington, D.C.
It was enough to cause mortgage rates to start rising again.
The latest Freddie Mac survey shows the 30-year fixed-rate mortgage at 6.12% as of February 9 — three basis points higher than the previous week. The survey includes conventional, conforming purchase loans with a 20% down payment and borrowers with excellent credit.
But other indexes unveiled even higher rates. According to Mortgage News Daily, the 30-year fixed rate was 6.42% on Thursday afternoon. At HousingWire Mortgage Rates Center, the Optimal Blue data – which uses actual locked rates with consumers across 35% of all mortgage transactions nationwide — showed rates at 6.29% on Wednesday.
“Following an interest rate hike from the Federal Reserve and a surprisingly strong jobs report, mortgage rates increased slightly this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “The 30-year fixed-rate continues to hover close to 6%, and interested homebuyers are easing their way back to the market just in time for the spring homebuying season.”
A year of mortage rate volatility
Mortgage industry observers and executives expect that 2023 will be a year of tension and volatility until the path to recovery is located. To navigate the challenging landscape, numerous companies have announced merger and acquisition transactions. Many have also imposed additional rounds of layoffs to cut costs.
“We’ve seen the Federal Reserve raising rates seven times for a total of 425 basis points,” Michael Nierenberg, chairman and CEO at New York-based Rithm Capital, said during a call with analysts on Wednesday.
Looking forward, Nierenberg said 2023 will be “hard,” but the Fed is closer to “being done” with rate hikes. “I think you’ll see a fair amount more volatility in the market this year. We’ll continue to monitor rate moves.”
According to George Ratiu, Realtor.com manager of economic research, the tension between expectations and economic data will continue to permeate financial markets for several more months. Consequently, mortgage rates are likely to continue moving up and down in a narrow range for the next few weeks.
“For housing markets, current rates remain a significant barrier to affordability, especially for first-time homebuyers. At the same time, there are several undercurrents which continue to reshape market dynamics,” Ratiu said.