The 30-year fixed-rate average climbed to 4.16 percent this week. It started the year at 3.22 percent. The days of record-low mortgage rates are over. Driven up by inflation and global conflict, the 30-year fixed average hit a high not seen since May 2019.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average jumped to 4.16 percent with an average 0.8 point. (A point is a fee paid to a lender equal to 1 percent of the loan amount. It is in addition to the interest rate.) It was 3.85 percent a week ago and 3.09 percent a year ago.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.
The 15-year fixed-rate average climbed to 3.39 percent with an average 0.8 point. It was 3.09 percent a week ago and 2.4 percent a year ago. The five-year adjustable rate average rose to 3.19 percent with an average 0.2 point. It was 2.97 percent a week ago and 2.79 percent a year ago.
“Mortgage rates already have risen substantially in advance of [the Federal Reserve] meeting,” said Holden Lewis, home and mortgage expert at NerdWallet. “But mortgages still have room to move upward, as the central bank is expected to raise short-term rates several more times this year.”
The Federal Reserve met this week and on Wednesday announced an increase in its benchmark rate by a quarter percentage point, the first increase in the federal funds rate in more than three years. The news came too late to be factored into Freddie Mac’s survey, which was done earlier in the week. The Fed does not set mortgage rates, but its decisions influence them.
“The mortgage market had already priced in the Fed’s increase [Wednesday] and was anticipating further increases in the coming months,” said Marty Green, principal at Polunsky Beitel Green, a mortgage law firm in Texas. “The uncertainty created by the crisis in the Ukraine, however, has moderated the impact of some of those anticipated rate increases as a flight to safety increased demand for U.S. Treasurys and mortgage bonds.”
The Fed also signaled the potential for six more hikes this year and the intention to begin shrinking their balance sheet as soon as May. The central bank ended its bond-buying program last week. During the pandemic, the Fed bought Treasurys and mortgage-backed securities in an effort to prop up the economy and hold down borrowing costs. Those purchases helped send mortgage rates to record lows.
“The Fed’s rate-raising campaign will affect home buyers, homeowners and even home sellers, too,” Lewis said. “Home buyers might have to shop at lower price ranges to adjust for their reduced buying power. Homeowners will find that the interest rates and minimum payments on home equity lines of credit will go up. And home sellers will want to make sure that when buyers make offers, they can afford the monthly payments at current rates, which may be higher than when they got preapproved a few weeks earlier.”
Investors reacted to the Fed news by pushing the yield on the 10-year Treasury to its highest level since May 2019. It soared to 2.24 percent on Wednesday before closing at 2.19 percent, up 27 basis points since the start of the month. (A basis point is 0.01 percentage point.) Mortgage rates tend to follow the same path as long-term bonds.
The Mortgage Bankers Association is now forecasting the 30-year fixed mortgage rate, the most popular home loan product, to rise to around 4.5 percent this year.
“Mortgage rates have been exceptionally volatile in recent weeks, given the profound uncertainties both with respect to the geopolitical situation and monetary policy,” said Mike Fratantoni, MBA’s chief economist. “Hopefully, the Fed’s actions and explanations can help to reduce the policy uncertainty, which would then diminish some of the current volatility.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed nearly evenly divided on where rates are headed in the coming week. Half of them said rates would go up, 40 percent said they would go down and the remainder said they would remain about the same.
Ken H. Johnson, a real estate economist at Florida Atlantic University, is one who predicts rates will rise.
“Fed hikes, increasing geopolitical risk exposure, and capital’s flight to safety are all leading to higher long-term mortgage rates,” Johnson said. “Rates are rising quickly now and will soon begin to impact housing prices.”
However, Michael Becker, branch manager at Sierra Pacific Mortgage, expects rates to fall.
“Bond markets are overreacting to the Fed raising rates for the first time in three years,” Becker said. “Bonds are oversold and due for a small rally.”
Meanwhile, mortgage applications slumped last week. The market composite index — a measure of total loan application volume — decreased 1.2 percent from a week earlier, according to Mortgage Bankers Association data.
The refinance index fell 3 percent and was 48.4 percent lower than a year ago. The purchase index ticked up 1 percent. The refinance share of mortgage activity accounted for 49.5 percent of applications.
“Applications to buy a home increased for the second consecutive week, as demand remains strong despite low inventory and higher mortgage rates and home prices,” said Bob Broeksmit, MBA’s president and chief executive. “The average purchase application loan amount was $453,200 — the second-highest total in the history of MBA’s survey. With mortgage rates now at a high last seen in May 2019, the refinance market remains subdued compared to the exceptional activity in 2020 and 2021.”