Mortgage rates hit new 2023 high on strong economic data


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More good news about the economy is sending mortgage rates soaring to new 2023 highs this week, with the Federal Reserve all but certain to resume rate hikes this month after pausing in June.

Fed policymakers are focused intently on the tight job market and rising wages as drivers of inflation. So a report out Thursday from ADP showing private sector employment grew by 497,000 jobs in June and that compensation was up by 6.4 percent from a year ago sent stock prices tumbling and bond yields climbing. Economists polled by The Wall Street Journal were expecting a gain of 220,000 private-sector jobs.

Nela Richardson

Nela Richardson

“Consumer-facing service industries had a strong June, aligning to push job creation higher than expected,” said ADP Chief Economist Nela Richardson, in a statement. “But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”

Separately, the latest JOLTS report (Job Openings and Labor Turnover Summary) from the Bureau of Labor Statistics showed job openings were down 14 percent from a year ago in May, to 9.8 million, while the Department of Labor reported initial jobless claims rose by 12,000 last week, to 248,000.

Mortgage rates hit new 2023 high

Mortgage rates were already headed up last week, after a Commerce Department report showed the U.S. economy grew at a faster-than expected 2 percent annual pace during the first quarter of the year.

Homebuyer demand for purchase mortgages was down by a seasonally adjusted 5 percent last week and 22 percent from a year ago, according to a weekly survey of lenders by the Mortgage Bankers Association.

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Joel Kan

It was the first weekly drop in purchase applications in a month, “as homebuyers remained sensitive to rate changes,” MBA Deputy Chief Economist Joel Kan said in a statement. “Rates are still over a percentage point higher than a year ago, and housing affordability is still a challenge in many parts of the country.”

At $423,500, the average purchase loan application dropped to the lowest level since January 2023, Kan said, and “likely driven by reduced purchase activity in some high-price markets and more activity in some of the lower price tiers as buyers searched for more affordable options.”

According to mortgage rate lock data tracked by the Optimal Blue Mortgage Market Indices, rates on 30-year fixed-rate conforming mortgages climbed to a new 2023 high of 6.92 percent on Wednesday, surpassing this year’s previous high of 6.85 percent seen on May 26.

Surge in 10-year Treasury yield

10 year T 7.6.23

The latest job data is expected to send mortgage rates even higher. Yields on 10-year Treasury notes — a good indicator of where mortgage rates are headed next — were up 10 basis points Thursday, climbing as high as 4.08 percent.

EP Sam Khater 325

Sam Khater

“This upward trend is being driven by a resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve,” Freddie Mac Chief Economist Sam Khater said in a statement. “These high rates combined with low inventory continue to price many potential homebuyers out of the market.”

The Federal Open Market Committee has approved 10 increases in the federal funds rate since March 2022, bringing the short-term federal funds rate to a target of between 5 percent and 5.25 percent. In voting to skip a rate hike in June, Federal Reserve indicated that they expected they’d need to make two more 25-basis point rate increases this year to get inflation under control before bringing the benchmark rate back down next year.

The CME FedWatch Tool, which monitors futures markets to measure investor expectations about the Fed’s next moves, puts the odds of another 25-basis point Fed rate hike on July 26 at 92 percent, with a 26 percent chance of another rate hike in September.

In their most recent forecast, economists at Fannie Mae said they expect Fed tightening will ultimately lead to a “modest recession” in the fourth quarter of this year, with the question of a downturn more a matter of “when” than “if.”

Powell’s remarks in Spain

At an economic conference in Spain last week, Fed Chair Jerome Powell noted that growth in consumer spending “has picked up this year, and some indicators in the housing market have turned up recently. At the same time, activity in the housing sector remains far below its peak in early 2022, reflecting the effects of higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on business fixed investment.”

For the week ending June 30, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less), rates averaged 6.85 percent, up from 6.75 percent the week before. With points increasing to 0.65 from 0.64 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200) averaged 6.95 percent, up from 6.91 percent the week before. Although points decreased to 0.64 from 0.69 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.68 percent, up from 6.63 percent the week before. Although points decreased to 0.98 from 1.08 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 15-year fixed-rate mortgages averaged 6.30 percent, up from from 6.23 percent the week before. With points increasing to 0.91 from 0.69 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 5/1 adjustable-rate mortgages, rates averaged 6.00 percent, down from 6.28 percent the week before. Although points increased to 1.23 from 1.02 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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