The economic rollercoaster ride continues as we close out February with investors reacting to the release of the minutes from the last Federal Open Market Committee meeting. The FOMC meeting minutes show that while members voted for a 25-basis point hike, the smallest of the increases over the last year, there is still strong concern about extremely high inflation. It was repeated multiple times that members feel "ongoing" rate hikes will be needed in order to control rampant inflation despite some positive data about the trajectory of prices.

The minutes stated, "Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path."

St. Louis Fed President James Bullard took a very hawkish stance in an interview with CNBC, saying, "It has become popular to say, 'Let's slow down and feel our way to where we need to be.' We still haven't gotten to the point where the committee put the so-called terminal rate. Get to that level and then feel your way around and see what you need to do. You'll know when you're there when the next move could be up or down." Both Bullard and Cleveland Fed President Loretta Mester were pushing for a 50-basis point hike at the last FOMC meeting. 

The market reacted strongly with the 10-year Treasury note yield reaching its highest level since November at 3.96%. The 10-year hit 3.95% on November 10, 2022. Based on the Fed's comments, investors are pricing in a 50-basis point rate hike at the next FOMC meeting March 16 and 17. The 10-year did start to slowly move lower as the week progressed but was still 50-basis points higher than where it started the month. 

Unfortunately for the mortgage industry, a rising 10-year Treasury yield typically coincides with rising mortgage rates. Mortgage rates continued to trend upward over the last week with Freddie Mac's 30-year fixed-rate mortgage average coming in at 6.5%. Freddie Mac's economists noted in their release that, "The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation."

Mortgage applications decreased by 13.3% week-over-week, according to the Mortgage Bankers Association's weekly survey, with purchases down 18% on a seasonally adjusted basis. The MBA's Vice President and Deputy Chief Economist, Joel Kan, pointed to the inflation issue that the Fed is desperately trying to control. Kan said in the release, "This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected. The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates."

Increasing interest rates make the latest announcement from the Department of Housing and Urban Development (HUD) that much more important. The Federal Housing Administration (FHA)  is lowering the cost of mortgage insurance premiums from 85-basis points to 55-basis points beginning March 20, 2023. A basis point is equal to .01%. This could amount to solid savings for FHA borrowers, typically first-time homebuyers, and help offset some of the cost of buying a home. According to a statement from HUD, this move is expected to save borrowers upwards of $800 per year. 

It's important to keep in mind that there are some nuances with mortgage insurance premiums (MIPs) on FHA loans. Your Movement Mortgage loan officer will be able to explain those in depth and help you understand what potential financial impact this rule change could have on your homebuying dreams.