WASHINGTON — Average long-term U.S. mortgage rates jumped last week to their highest level in more than two years, potentially bumping some home buyers out of the market with Americans getting squeezed by higher costs for just about everything.
The average rate on the 30-year loan jumped nearly a quarter point to 3.69% last week, mortgage buyer Freddie Mac reported Thursday. After rising nearly a half-point early in the year, the average long-term rate had been flat for three weeks. It was 3.55% a week ago and 2.73% a year ago.
Although it’s still historically low, the average rate for a 30-year mortgage hasn’t been this high since the first week of January 2020 when it was 3.72%.
The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, was 2.93%. It was 2.77% a week ago and 2.19% a year ago. The five-year adjustable rate average rose to 2.8% . It was 2.71% a week ago and 2.79% a year ago.
Freddie Mac 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 Federal Reserve has signaled that it would begin the first in a series of interest rate increases in March, reversing pandemic-era policies that have fueled hiring and growth but also contributing to inflation levels not seen in some 40 years.
The Labor Department said Thursday that consumer prices jumped 7.5% last month compared with 12 months earlier, the steepest year-over-year increase since February 1982. Higher costs for just about everything have hammered consumers, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates across the economy.
Home prices have risen even more. Depending on the location, the price for a new home has broadly risen about 14% and as much as 30% in some cities. Housing was in short supply even before the pandemic, and higher prices and rising interest rates will make it even harder for those seeking a move to buy a new home.
“The Freddie Mac fixed rate for a 30-year loan resumed its upward momentum this week after a three-week hiatus,” said George Ratiu, manager of economic research at Realtor.com. “Rates increased along with the surge in the 10-year Treasury which passed 1.9% this week. … The stronger-than-expected employment report for January and rising inflation are keeping investors bullish on the economy and the expected rate hikes from the Federal Reserve in the first half of the year. With rising rates, mortgage applications to purchase a home declined last week, as many first-time buyers were priced out of the market.”
January’s better-than-expected employment report pushed long-term bond yields to their highest level in years. The U.S. economy added 467,000 jobs in January, and the unemployment rate grew slightly to 4% as more people looked for work. The data suggested a resilient economy despite a surge in coronavirus cases because of the omicron variant.
“Payroll data released late last week showed much stronger than anticipated job and wage growth, as many expected some slowdown due to the surge in covid-19 cases in January,” said Paul Thomas, vice president of capital markets at Zillow. “All of this points to more hawkish expectations for the Federal Reserve, driving interest rates higher. Markets are pricing in further rate hikes.”
Consumer price index data, released Thursday morning, showed prices rose 7.5% in January compared with a year ago, the fastest inflation since 1982. Inflation causes fixed-income investments like bonds to lose value, which is why investors demand more in return for holding them. When yields rise sharply, it’s because investors want to be paid more for lending long term.
“As inflation goes, so go mortgage rates,” said Elizabeth Rose, sales manager at Mortgage300.
Bankrate.com, which puts out a weekly mortgage rate trend index, found more than three-quarters of the experts it surveyed expect rates to continue to rise in the coming week.
“A stronger-than-expected jobs number last Friday not only left economists stunned but also signals liftoff to the Fed and rate hikes,” said Gordon Miller, owner of Miller Lending Group. “Mortgage rates will likely drift higher as the market now guesses at the size of the rate hike in March.”
Meanwhile, mortgage applications tailed off last week. The market composite index — a measure of total loan application volume — decreased 8.1% from a week earlier, according to Mortgage Bankers Association data. The refinance index dropped 7%, while the purchase index fell 10%. For the fourth week in a row, the average purchase loan size hit a new high. It was $446,000 last week. The refinance share of mortgage activity accounted for 56.2% of applications.
Information for this article was contributed by Matt Ott of The Associated Press and by Kathy Orton of The Washington Post.