Mortgage rates continue their ascent

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 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 3.63 percent with an average 0.8 point. It was 3.39 percent a week ago and 2.45 percent a year ago. The five-year adjustable rate average grew to 3.36 percent with an average 0.3 point. It was 3.19 percent a week ago and 2.84 percent a year ago.

“The Freddie Mac fixed rate for a 30-year loan continued its ascent this week, following the upward path of the 10-year Treasury [yield], which reached the highest level since May 2019,” said George Ratiu, manager of economic research at Realtor.com. “Investors reacted to Federal Reserve Chairman Powell’s remarks at the National Association for Business Economics. … The main takeaway is that mortgage rates are likely to push toward 5 percent before the end of the year, with lenders anecdotally reporting quotes around 4.75 percent for the 30-year fixed rate.”

As the coronavirus pandemic’s effect on mortgage rates recedes, inflation is exerting greater influence on where rates are headed. Inflation is bad for bonds because it erodes the value of future payments. When inflation heats up, investors either sell bonds or demand more for holding onto them, which causes yields to move higher.

Since home loan rates tend to follow the same path as long-term bond yields, they go up as well. The yield on the 10-year Treasury hit 2.38 percent on Tuesday, its highest level since May 2019, before falling to 2.32 percent on Wednesday.

“Inflation is still accelerating and until there is evidence that inflation is peaking, or has peaked, there isn’t much to keep mortgage rates from rising further,” said Greg McBride, chief financial analyst at Bankrate.com.

The Federal Reserve’s efforts to tame inflation is also causing rates to rise. The Fed announced earlier this month its first increase in its benchmark rate since 2018, raising the federal funds rate by a quarter percentage point. The central bank doesn’t set mortgage rates, but its actions often influence them.

“Another important thing to note from the meeting is that the Fed indicated it will begin reducing its balance sheet. (This is separate from the tapering of purchasing Treasurys and mortgage-backed securities, which ended this month),” Robert Heck, vice president of mortgage at Morty, online mortgage marketplace, wrote in an email. “While the plan will likely be shared at the May meeting, based on their indications, it appears it will be through traditional means, and that they won’t actively sell [mortgage-backed securities] as some had feared based on previous remarks.”

Although inflation and the Fed’s actions are exerting a greater influence on mortgage rates for the moment, global events could tamp down the increases. Russian’s invasion into Ukraine has held mortgage rate increases somewhat in check.

“Mortgage rates have been steadily on the rise since the end of 2021, but have been characterized by consistent market volatility,” Heck wrote. “This reached a fever pitch over the past month with the conflict in Ukraine and continued inflation and tightness in the labor market having a push and pull effect, causing rates to bounce up and down.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found nearly three-quarters of the experts it surveyed expect rates to move higher in the coming week.

“The Fed is on a tear to tame inflation and has said increases of 50 basis points are not out of the question in the coming meetings to keep it in line,” said Mitch Ohlbaum, mortgage banker at Macoy Capital Partners. “Some still say the inflation we are seeing is transitory, which if true, would keep the Fed increases to a minimum. At this point in time, I do not think there is a clear picture [on inflation].”

Meanwhile, with rates rising, mortgage applications continued to decline last week. The market composite index — a measure of total loan application volume — decreased 8.1 percent from a week earlier, according to Mortgage Bankers Association data.

The refinance index fell 14 percent and was down 54 percent from a year ago. The purchase index slipped 2 percent. The refinance share of mortgage activity accounted for 44.8 percent of applications.

“The largest weekly jump in mortgage rates in two years pulled down mortgage applications, with both purchase and refinance activity falling last week and from a year ago,” Bob Broeksmit, MBA’s president and chief executive, said. “MBA’s new March forecast calls for higher mortgage rates, but moderating home-price growth and rising inventory should still lead to an annual increase in new and existing-home sales.”