Mortgage Rates Rise

Mortgage rates increased for the week ending November 18, 2021, with Freddie Mac reporting the 30-year fixed-rate mortgage averaging 3.10%, up from 2.98% the prior week. This rise, also reflected in 15-year rates, is primarily driven by rising inflation and consumer spending, according to Freddie Mac's Chief Economist. The higher rates, combined with strong homebuyer demand and persistent inventory shortages, underscore the ongoing challenges and complexity within the housing market.

Analysis

Mortgage rates experienced a notable weekly increase for the period ending November 18, 2021, with the 30-year fixed-rate mortgage rising 12 basis points to 3.10% and the 15-year fixed-rate mortgage also climbing 12 basis points to 2.39%. These rates are significantly elevated from their year-ago levels of 2.72% and 2.28%, respectively. According to Freddie Mac's Chief Economist, this upward pressure on rates is a direct result of rising inflation and robust consumer spending, linking the housing market directly to broader macroeconomic trends. The increase exacerbates an already challenging housing environment characterized by a confluence of strong homebuyer demand, persistent inventory shortages, and high prices. In a slight divergence, the 5-year adjustable-rate mortgage saw a minor decrease to 2.49%, potentially indicating some nuance in different segments of the mortgage market.

Key Decisions for Investors

• Consider reviewing exposure to interest-rate sensitive sectors like homebuilding and mortgage origination, as rising mortgage rates on top of high home prices may begin to dampen consumer demand.
• The attribution of rate hikes to inflation and consumer spending reinforces a key macroeconomic narrative, suggesting a potential underweighting of long-duration fixed-income assets.
• Monitor the spread between fixed and adjustable-rate mortgages, as the noted divergence could signal shifts in borrower behavior and impact the performance of specific mortgage-backed securities.
• The ongoing housing inventory shortage continues to support home prices, which could remain a positive factor for investments in residential real estate and related REITs.