Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to arrive at weekly national averages. The survey is based on mortgages on the purchase of a home. Refinance rates may be different. It uses rates for high quality borrowers with strong credit scores and large down payments. Due to criteria, these rates are not available to all borrowers.
The average of fixed rates over 15 years rose to 3.09% with an average of 0.8 points. It was 3.01% a week ago and 2.38% a year ago. The five-year average of revisable rates rose to 2.97% with an average of 0.3 points. It was 2.91% a week ago and 2.77% a year ago.
“The Freddie Mac fixed rate for a 30-year loan rebounded this week, following the 10-year Treasury bond,” said George Ratiu, head of economic research at Realtor.com. “Investors were worried about rising inflation. … All eyes are on the Federal Reserve meeting next week as we expect the bank to raise the [federal] funds rate. The big question on the minds of many analysts is whether a 25 basis point hike will be enough given severe labor shortages and inflation at levels not seen since the 1980s.”
After hitting 2.05% in mid-February, the 10-year Treasury yield fell to 1.72% at the start of the month. It has steadily risen towards 2%, closing at 1.94% on Wednesday. With Thursday’s inflation news, long-term bond yields should continue to climb. Since mortgage rates tend to follow the same trajectory as Treasury yields, they should also rise.
“The flight to safety caused by events in Ukraine is turning, at least temporarily, into a flight to opportunity with capital flowing from equities and other safe havens into Western currencies and commodities instead of 10-year treasury bills,” said Ken H. Johnson, real estate economist at Florida Atlantic University.
Consumer Price Index data, released Thursday morning, showed prices rose 7.9% in February, from a year ago, as inflation remained at an all-time high level in 40 years. Inflation causes fixed income investments such as bonds to lose value, which is why investors demand more in exchange for holding them. When yields go up, it’s because investors want to be paid more for long-term loans.
“Rising oil and other commodity prices will cause additional inflation — but not the kind of inflation the Fed can fix,” said Greg McBride, chief financial analyst at Bankrate.com. “Inflation is a bond investor’s worst enemy, so it’s the dominant risk for mortgage rates.”
Bankrate.com, which publishes a weekly index of mortgage rate trends, found that nearly three-quarters of surveyed experts expect rates to rise in the coming week.
“While the Russian invasion of Ukraine is still on the minds of bond traders and investors, keeping yields and mortgage rates lower than they otherwise would be, rising oil prices renew and heightens their concerns about inflation,” said Michael Becker, branch manager at Sierra Pacific Mortgage. “Oil prices and even gasoline prices at the pump have increased dramatically. This focus on possible future inflation will drive bond yields and mortgage rates higher.
Meanwhile, mortgage applications picked up last week. The composite market index – a measure of the total volume of loan applications – rose 8.5% from the previous week, according to data from the Mortgage Bankers Association.
The refinancing index rose 9%, but was down 50% from a year ago. The purchases index also increased by 9%. The refinancing share of mortgage activity represented 49.5% of applications.
“Refinance and homebuyer applications both saw strong weekly gains,” said Bob Broeksmit, MBA’s president and CEO. “MBA expects mortgage rates to be volatile in the coming weeks as inflationary pressures and investor concerns over the conflict in Ukraine move the 10-year Treasury yield in competing directions.”
The MBA also released its Mortgage Credit Availability Index (MCAI) which showed credit availability increased in February. The MCAI rose 1% to 126 last month. An increase in the MCAI indicates that lending standards are loosening, while a decrease indicates that they are tightening.
“Credit availability has reached its highest level since May 2021, driven by growth in jumbo loan programs, as well as those that include allowances for ARMs and an expanded credit score and [loan-to-value] requirements,” MBA economist Joel Kan said in a statement. “In a period of rising mortgage rates, affordability challenges and declining volume, lenders have made efforts to slightly expand their product offerings.”
Fannie Mae released its quarterly mortgage lender sentiment survey on Thursday. It showed that three-quarters of lenders surveyed expect their profit margins to shrink as mortgage rates rise, up from 65% in the fourth quarter of 2021. The top reasons lenders cite for why they expected to decline in profitability were competition from other lenders, changes in market trends and consumer demand.
“Rising interest rates, lack of supply and sharp appreciation in home prices have reduced refinancing activity and further limited affordability to buy a home, which, of course, dampens lenders’ expectations of future business activity,” Fannie Mae chief economist Doug Duncan said in a statement. “Many uncertainties, including increased inflation and the monetary policy response of the Fed, which must now also take into account the inflationary impact of Russia’s war against Ukraine, suggest increased market volatility. “