Volatile Week


Overview: It was an extremely volatile week for mortgage markets. Following last Wednesday’s Federal Reserve meeting, mortgage rates climbed sharply to the highest levels in about two decades, before a policy change from the Bank of England offered a bit of relief.

 

Late last week, the U.K. announced a series of tax cuts and fiscal spending increases designed to assist people struggling with soaring energy prices and other higher costs. This policy was perceived as adding to inflationary pressures, causing U.K. bond yields to soar, and yields in other countries increased as well. On Wednesday, the Bank of England responded with a plan to purchase bonds temporarily to help stabilize financial markets. This unexpected increase in demand for bonds caused global yields to decline.


A brief period of relatively lower mortgage rates in August caused a surge of activity by many homebuyers. After sales of new homes peaked in January 2021 at an annualized rate of 993,000, they were at roughly half that level at just 511,000 in July. The consensus forecast for August was for a similarly low reading, but instead, new home sales unexpectedly jumped 29% from July to an annual rate of 685,000. The median price of a new home was 8% higher than a year ago at $436,800, the smallest annual rate of increase since November 2020. Since mortgage rates have climbed to much higher levels in September, next month’s sales data is likely to be significantly weaker.


It’s easy to see the enormous impact of higher mortgage rates on mortgage application volumes, which are now at the lowest levels in decades. According to the latest weekly data from the Mortgage Bankers Association (MBA), average 30-year fixed rates are more than double what they were a year ago. Purchase applications are down 29% from last year at this time, and applications to refinance a loan have plunged a shocking 84% from one year ago. Gaining favor by offering lower interest rates, adjustable-rate mortgages climbed to 10% of applications and accounted for 20% of the dollar volume.

 

New-Home Sales (thousands)

 

Week Ahead


September 30 — Core Personal Consumption Expenditures (PCE) Price Index

October 3 — Institute for Supply Management (ISM) Manufacturing Index

October 5 — ISM Services Index

October 7 — Employment Report