Inflation, Fed fears lift mortgage rates

30-year interest climbs back to 3%

Mortgage rates moved higher this week as worries about inflation and potential moves by the Federal Reserve unsettled investors.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 3% compared with 2.94% a week ago and 3.24% a year ago.

The 15-year fixed-rate average rose to 2.29% with an average 0.7 point. It was 2.26% a week ago and 2.7% a year ago. The five-year adjustable rate average was unchanged at 2.59% with an average 0.3 point. It was 3.17% a year ago.

The Federal Reserve released the minutes from its April meeting this week. In them, Fed officials indicated they were optimistic about the economy. Some of them -- how many is unclear -- are ready to start discussing when to pull back on the bond-buying program. Since early in the pandemic, the central bank has been buying $120 billion in Treasurys and mortgage-backed securities each month to help prop up the economy. These purchases have also held down mortgage rates.

"Looking at the [Federal Reserve] meeting minutes, the Fed might not be thinking about tapering asset purchases, but they are thinking about talking about it," said Greg McBride, chief financial analyst at Bankrate.com. "That'll be enough to spook investors a bit."

After the housing crash in 2008, the Fed undertook a similar bond-buying program. In 2013 when then-Fed chair Ben Bernanke mentioned the central bank tapering its purchases, mortgage rates soared. Although there is no indication the Fed has plans to reduce its bond purchases anytime soon, the mere suggestion of it might be enough to rattle investors and send home-loan rates higher.

Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed mixed on where rates are headed in the coming week. Forty-two percent expect rates to go up, another 42% expect them to remain about the same, and the remainder expect them to fall.

Ken H. Johnson, a real estate economist at Florida Atlantic University, predicts rates will begin to move up.

"Between investment opportunities brought about by a steepening yield curve and the 10-year Treasury market, 30-year mortgages will witness a decline in value and a corresponding increase in yield," he said. "Thus, long-term mortgage rates should begin to see a series of slow and steady rate increases in the weeks ahead as investors move to alternative risk-adjusted investment opportunities."

Meanwhile, mortgage applications continued to grow last week, spurred by refinances. According to the latest data from the Mortgage Bankers Association, the market composite index -- a measure of total loan application volume -- increased 1.2% from a week earlier. The refinance index climbed 4% from the previous week, while the purchase index dropped 4%. The refinance share of mortgage activity accounted for 63.3% of applications. Refinance activity has increased for three weeks in a row.

"Applications for conventional and VA refinances increased," Joel Kan, an association economist, said in a statement. "Ongoing volatility in refinance applications is likely if rates continue to oscillate around current levels."

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