Freddie Mac, a federally registered mortgage investor, collects rates from about 80 lenders across the country to come up with weekly national averages. The study is based on home mortgage loans. Refinancing rates may vary. It uses rates for high quality borrowers with strong credit scores and large down payments. Due to the criteria, these rates are not available to every borrower.
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The average value of the fixed rate for 15 years has grown to 3.39 percent with an average value of 0.8 points. A week ago it was 3.09 percent, and a year ago it was 2.4 percent. The five-year average regulated rate rose to 3.19 percent with an average value of 0.2 points. A week ago it was 2.97 percent, and a year ago it was 2.79 percent.
“Mortgage rates have already risen significantly ahead of [the Federal Reserve] meeting,” said Holden Lewis, home and mortgage loan expert at NerdWallet. “But mortgages still have room to grow as the central bank is expected to hike short-term rates several more times this year.”
The Federal Reserve met this week and on Wednesday announced a quarter-point hike in its base rate, the first hike in the federal funds rate in more than three years. The news came too late to be included in the Freddie Mac poll earlier this week. The Fed does not set mortgage rates, but its decisions affect them.
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“The mortgage market has already priced in the Fed’s hike. [Wednesday] and expected further increases in the coming months,” said Marty Green, director of Polunsky Beitel Green, a mortgage law firm in Texas. “However, the uncertainty caused by the crisis in Ukraine has softened the impact of some of these expected rate hikes, as the flight to safety increased demand for U.S. Treasuries and mortgage bonds.”
The Fed also announced the possibility of six more increases this year and the intention to start reducing its balance sheet as early as May. Last week, the central bank ended its bond buying program. During the pandemic, the Fed has been buying Treasuries and mortgage-backed securities to prop up the economy and lower borrowing costs. These purchases helped bring mortgage rates down to record lows.
“The Fed’s rate hike campaign will also affect home buyers, homeowners and even home sellers,” Lewis said. “Homebuyers may need to shop in lower price ranges to accommodate their reduced purchasing power. Homeowners will find that interest rates and minimum payments on home equity lines of credit will rise. And home sellers will want to make sure that when buyers make offers, they can afford monthly payments at current rates, which could be higher than when they were pre-approved weeks earlier.”
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Investors reacted to the Fed’s news by raising 10-year Treasury yields to their highest level since May 2019. It rose to 2.24 percent on Wednesday before closing at 2.19 percent, up 27 basis points since the start of the month. (The base point is 0.01 percentage points.) Mortgage rates tend to follow the same trajectory as long-term bonds.
The Mortgage Bankers Association is now forecasting that the 30-year fixed-rate mortgage, the most popular home loan product, will rise to around 4.5% this year.
“Mortgage rates have been exceptionally volatile in recent weeks given the deep uncertainty over both the geopolitical environment and monetary policy,” said Mike Fratantoni, MBA chief economist. “We hope the Fed’s actions and explanations can help reduce policy uncertainty, which will then partly reduce current volatility.”
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Bankrate.com, which publishes a weekly index of mortgage rate trends, found that experts it polled were almost evenly divided on where rates would move next week. Half of them said rates would go up, 40 percent would go down, and the rest would stay about the same.
Ken H. Johnson, a real estate economist at Florida Atlantic University, predicts rates will rise.
“Fed rate hikes, increased exposure to geopolitical risk, and capital flight to safety are all pushing up long-term mortgage rates,” Johnson said. “Rates are rising rapidly now and will soon begin to affect home prices.”
However, Michael Becker, branch manager of Sierra Pacific Mortgage, expects rates to fall.
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“Bond markets are overreacting to the Fed’s rate hike for the first time in three years,” Becker said. “Bonds are oversold and a slight rally is expected.”
Meanwhile, mortgage applications fell sharply last week. The composite market index, a measure of total loan applications, was down 1.2 percent from a week earlier, according to the Mortgage Bankers Association.
The refinancing index fell 3 percent and was 48.4 percent lower than a year ago. The index of purchases rose by 1 percent. The share of refinancing mortgage activities accounted for 49.5 percent of applications.
“Home purchase orders have increased for the second straight week as demand remains strong despite low inventories and higher mortgage and home prices,” said Bob Brooksmith, MBA President and CEO. “The average purchase loan amount was $453,200, the second highest in the history of the MBA survey. With mortgage rates currently at their highest levels last seen in May 2019, the refinancing market remains subdued compared to exceptional activity in 2020 and 2021.”