Mortgage rates hold steady, resist upward pressure

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 ticked up to 4.32 percent with an average 0.8 point. It was 4.31 percent a week ago and 2.27 percent a year ago. The five-year adjustable rate average fell to 4.04 percent with an average 0.3 point. It was 4.2 percent a week ago and 2.64 percent a year ago.

“Expectations for how the Federal Reserve will attempt to tame inflation while avoiding a recession are being priced into mortgage rates today,” said Paul Thomas, vice president of capital markets at Zillow. “Despite low unemployment and ongoing inflationary pressures, markets are beginning to show concern over slowing economic growth as central banks tighten monetary policy. The result is softening rates. Although the Fed has maintained their stance on [half percentage point] increases at the next few meetings — which would put upward pressure on mortgage rates — investors seem to be betting that the economy could sputter, and the Federal Reserve will have to slow down rate hikes sooner than previously anticipated.”

Inflation continues to put a strain on the economy in the United States and abroad. Although inflation in the United States eased slightly in April, it remains at 40-year highs. Prices rose 8.3 percent in April, compared with prices a year ago, down from an 8.5 percent increase in March. Inflation in Europe hit a record 8.1 percent in May, up from 7.4 percent in April, according to a preliminary estimate by Eurostat that came out this week.

Another interest rate hike is on the table when the Federal Reserve meets later this month as the Fed tries to bring down inflation. In May, the central bank raised its benchmark rate by a half-percentage point, its largest one-step boost since 2000. Although the Fed does not set mortgage rates, its actions influence them. Canada’s central bank hiked interest rates a half-percentage point this week.

“Rising prices and interest rate hikes continue to be top-of-mind for investors,” said Hannah Jones, an economic data analyst at Realtor.com. “After a tumultuous month characterized by widespread concern around inflation and the possibility of recession, the stock market ended the month of May roughly where it started after a rally last week. In a meeting with Federal Reserve Chair [Jerome H.] Powell and Treasury Secretary [Janet] Yellen, President Biden voiced his support of the Fed’s actions to rein in inflation and pledged to refrain from influencing interest rate decisions. Powell and Fed officials continued to emphasize their commitment to taking action in upcoming meetings to rein in prices and achieve 2 percent inflation.”

Inflation makes holding long-term bonds less attractive, because it erodes the value of future payments. Investors tend to sell Treasurys and mortgage-backed securities when inflation is high, putting upward pressure on mortgage rates.

Because home loan rates tend to follow the same path as long-term bond yields, when yields rise often, so do mortgage rates. The yield on the 10-year Treasury bounced back this week, closing at 2.94 percent on Wednesday. It reached a four-year high of 3.12 percent on May 6 before sliding to 2.74 percent on Friday.

“After a nice three-week rally, Treasury bonds and mortgage-backed securities are selling off,” said Michael Becker, branch manager at Sierra Pacific Mortgage. “This is pushing mortgage rates higher. Concerns about inflation seem to be returning to markets, with higher-than-expected European inflation, the reopening of China’s economy and a very hawkish Canadian central bank being the catalyst for the selloff.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found 86 percent of the experts it surveyed expect rates to go up in the coming week.

“In the course of the coming week, rates will continue their annoying up-and-down moves as uncertainty reigns,” said Dick Lepre, loan agent at Crosscountry Mortgage. “In the longer run, rates are all about inflation and there is no sign that inflation will decrease significantly before the end of 2023. Money supply needs to be reduced but reducing money supply necessitates the Fed selling Treasury and MBS debt which drives yields higher.”

Meanwhile, mortgage applications pulled back again last week, falling to their lowest level since December 2018. The market composite index — a measure of total loan application volume — decreased 2.3 percent from a week earlier, according to Mortgage Bankers Association data.

The refinance index was down 5 percent from the previous week and was 75 percent lower than a year ago. The purchase index fell 1 percent. The refinance share of mortgage activity accounted for 31.5 percent of applications.

“Rates remain significantly higher than earlier this year, which is why applications for refinances and home purchases have fallen most of this spring,” Bob Broeksmit, MBA’s president and chief executive, wrote in an email. “Mortgage lenders are reporting that home buyer interest at the upper end of the market remains strong, as these borrowers are less likely to be dissuaded by higher mortgage rates and are more likely to have larger down payments from savings and the proceeds from selling their previous home.”