Mortgage rates' rapid rise continued unabated this week.
According to data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 4.67% with an average 0.8 point. (A point is a fee paid to a lender equal to 1% of the loan amount. It is in addition to the interest rate.) It was 4.42% a week ago and 3.18% a year ago. The last time the 30-year average was this high was in December 2018.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 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 jumped to 3.83% with an average 0.8 point. It was 3.63% a week ago and 2.45% a year ago. The five-year adjustable rate average rose to 3.5% with an average 0.3 point. It was 3.36% a week ago and 2.84% a year ago.
"Mortgage rates increased significantly last week," Paul Thomas, vice president of capital markets at Zillow, said. "Markets are anticipating more aggressive actions by the Federal Reserve, based on comments from many officials after the March [Fed] meeting. Consensus is now predicting several 50 basis point hikes to the federal funds rate this year, which will lead to further upward pressure on mortgage rates."
The rapid rise in the 30-year fixed rate average has been jarring to home buyers and homeowners looking to refinance. It has been a while since rates have moved up that much that quickly. At the start of the year, the 30-year fixed average was 3.22%. Now it is more than a percentage point and a half or 155 basis points higher just three months later. (A basis point is 0.01 percentage point.)
The Federal Reserve's actions are the biggest reason mortgage rates are moving higher. Although the Fed does not set mortgage rates, it does influence them. The central bank took the first steps toward bringing down inflation earlier this month when it raised its benchmark rate for the first time since 2018. In addition to the federal funds rate increase, the Fed indicated at its last meeting that it would begin reducing its balance sheet.
The Federal Reserve holds about $2.74 trillion in mortgage-backed securities. It indicated it will reveal its plans for reducing its holdings at its May meeting. The more aggressively the Fed sells those bonds the faster mortgage rates are likely to rise.
"Mortgage rates have been rising steadily for a month, driven higher by inflation and the Federal Reserve's effort to control inflation," Holden Lewis, home and mortgage specialist at NerdWallet, said. "Just a couple of months ago, most forecasters were predicting that rates would rise all year but wouldn't reach 5%. Well, we're approaching 5% just a quarter of the way through the year. Rates will keep rising until investors see inflation heading downward."
But this rapid ascent isn't expected to last. As Matthew Graham, chief operating officer of Mortgage News Daily, wrote last week, "the higher rates go and the faster they get there, the sooner the next period of relative stability can begin. This can happen even as the Fed continues to hike rates because the mortgage and Treasury markets are making immediate changes based on future expectations. When the future plays out as expected, it doesn't imply any change to the rates we're currently seeing."
It is not just rising rates that are making home loans more expensive. Earlier this year, the Federal Housing Finance Agency announced fee increases effective April 1 for some Fannie Mae and Freddie Mac home loans. Loans with what the FHFA termed a "high balance" or for a second home face increased costs.
High balance are loans that are above the conforming national baseline limit ($647,200). Fees for high balance loans will increase between 0.25% and 0.75%, tiered by loan-to-value ratio. Fees for second home loans will increase between 1.125% and 3.875%, tiered by loan-to-value ratio.
Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed divided on where rates are headed in the coming week. Forty percent said they will go up, another 40% said they would go down, and 20% said they would stay about the same.
Greg McBride, chief financial analyst at Bankrate.com, expects rates will rise.
"The rise in rates is due for a breather," McBride said. "But until we see some better news on inflation or some tepid economic data, it is unlikely to happen."
Les Parker, managing director at Transformational Mortgage Solutions, predicts they will fall.
"The 10-Year Treasury note yield minus the 2-year yield inverted the other day, increasing concerns about slowing growth," Parker said. "So, investors want to buy [mortgage-backed securities and that drives] down mortgage rates."
Meanwhile, mortgage applications fell again last week, pulled down by fewer refinances. The market composite index -- a measure of total loan application volume -- decreased 6.8% from a week earlier, according to Mortgage Bankers Association data.
The refinance index fell 15% and was down 60% from a year ago. The purchase index edged up 1%. The refinance share of mortgage activity accounted for 40.6% of applications.
Mike Fratantoni, the MBA's chief economist, is not surprised to see refinance volume continue to decline given that rates are significantly higher than a year ago. But he is encouraged by the uptick in purchase applications.
"Even with the ongoing climb in rates, purchase application volumes were little changed last week," he said. "This is particularly auspicious, as we are now in the beginning of the spring home-buying season, and those shopping for homes are struggling with not only higher and more volatile mortgage rates, but also an ongoing shortage of homes on the market. Given these hurdles, it appears to be promising news that purchase application volume has not declined, as many potential buyers are likely feeling the squeeze in their purchasing power from the jump in rates."