Fed’s Interest Rate Hike and MVIS US Mortgage REITs Index

Mortgage rates have been exceptionally volatile in recent weeks, given the profound uncertainties both with respect to the geopolitical situation and monetary policy. Though mortgage rates do not follow the federal funds rate, they do typically follow the yield on the 10-year Treasury. Following the Fed's announcement, the 10-year Treasury yield soared to as high as 2.246%, reaching its highest level since May 2019.

In addition to Wednesday's rate hike, the U.S. central bank's policymakers signaled that six more hikes could be coming by the end of 2022. Although many analysts don’t think it would be feasible, anyone in the U.S. considering buying a home and taking out a fixed-rate mortgage should do so as soon as possible.

According to the Mortgage Bankers Association, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.27% from 4.09% for the week ending March 11, with points rising to 0.54 from 0.44, including the origination fee, for loans with a 20% down payment. Applications to refinance a home loan fell 3% from the previous week and were 49% lower than the same week a year ago.

The MVIS US Mortgage REITS Index (MVMORT) tracks the performance of the largest and more liquid companies in the U.S. Mortgage REITS Industry. This is a modified market cap-weighted index, and only includes REITs that derive at least 50% of their revenues from Mortgage, such as REITs that are primarily engaged in the purchase or service of commercial or residential mortgage loans or mortgage related securities. MVMORT covers at least 90% of the investable universe.

Looking ahead, the MBA forecasts that mortgage rates will rise to around 4.5% over the next year. Beyond the rate hike, Fratantoni emphasized that the MBA will be looking for details regarding the Fed's plans to shrink its balance sheet, in which treasuries and mortgage-backed securities will be allowed to passively roll off.