Mortgage rates came out of their doldrums in a big way this week.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 2.81% with an average 0.7 point. (Points are fees paid to a lender equal to 1% of the loan amount and are in addition to the interest rate.) It was 2.73% a week ago and 3.49% a year ago. The 30-year fixed rate has not been this high since Nov. 12, around the time Pfizer announced results from its coronavirus vaccine trial.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national average mortgage rates. 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.
Because the survey is based on home purchase mortgages, rates for refinances may be higher. The price adjustment for refinance transactions that went into effect in December is adding to the cost. The adjustment, which applies to all Fannie Mae and Freddie Mac refinances, is 0.5% of the loan amount. That works out to $1,500 on a $300,000 loan.
The 15-year fixed-rate average rose to 2.21% with an average 0.7 point. It was 2.19% a week ago and 2.99% a year ago. The five-year adjustable rate average slipped to 2.77% with an average 0.2 point. It was 2.79% a week ago and 3.25% a year ago.
“Mortgage rates surged higher this week, rising at their fastest pace in months,” said Matthew Speakman, a Zillow economist. “In a way, this uptick was inevitable. Rates had been holding firm in recent weeks, even as Treasury yields — which generally dictate mortgage rate movements — gradually pushed higher, leaving them with very little cushion should a strong upward move in yields occur.”
After a big spike at the start of the year, mortgage rates were lulled into place for much of the past month. The 30-year fixed-rate average was stuck at 2.73% for three consecutive weeks. Then the yield on the 10-year Treasury had its biggest one-day increase since November on Tuesday, rising to 1.3% — its highest level in nearly a year. Yields move inversely to prices. The huge jump was caused by investors’ fears about inflation.
“Rates really spiked in recent days as both mortgage back securities and Treasurys sold off on rising inflation expectations,” said Michael Becker, branch manager of Sierra Pacific Mortgage in Lutherville, Md. “The sell-off was rather dramatic and perhaps a bit overdone. Bonds may now be a bit oversold and because of that, I expect the sell-off will abate in the coming week.”
Inflation is bad for bonds because it erodes the value of their fixed payments. Higher inflation could possibly lead the Federal Reserve to raise interest rates and place more upward pressure on yields and mortgage rates, Speakman says.
“While that remains to be seen, as mortgage rates remain very low by historic standards, this shift in the market’s outlook seems to suggest that the days of all-time low rates may be a thing of the past,” he said.
Bankrate.com, which puts out a weekly mortgage rate trend index, found nearly two-thirds of the experts it surveyed predicted rates would continue to go up in the coming week.
“It’s hard to ignore the . . . sharp trend of the 10-year Treasury causing many to frantically re-price and brace for impact,” said Jennifer Kouchis, senior vice president of real estate lending at VyStar Credit Union in Jacksonville, Fla. “I have a feeling that this could get worse before it gets better, but I am not convinced that this is our final fate, and we won’t see rates level back down in the weeks or months to come.”
Meanwhile, mortgage applications retreated again last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 5.1% from a week earlier. The purchase index fell 6% from the previous week but was 15% higher than a year ago. The refinance index was down 5% but was 51% higher than a year ago. The refinance share of mortgage activity accounted for 69.3% of applications.
“Demand for buying a home exceeds supply in most of the country this winter — especially at the lower end of the market,” said Bob Broeksmit, MBA president and CEO. “Although purchase applications continue to outpace year-ago levels, activity has declined slightly in recent weeks because of a lack of inventory and the upward pressure that it is putting on home prices. The slow rise in mortgage rates over the past month has modestly dampened refinancing activity. Refinances are still up considerably compared to last year, but their share of total applications last week dipped below 70% for the first time since last October.”