Inflation, which has been hitting consumers hard in their everyday lives, is also causing pain for home buyers in the form of soaring mortgage rates.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average spiked to 3.92% this week. It was 3.69% a week ago and 2.81% a year ago. The 30-year fixed rate started the year at 3.22.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 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 3.15%. It was 2.93% a week ago and 2.21% a year ago. The five-year adjustable rate average climbed to 2.98% from 2.8% a week ago and 2.77% a year ago.
"Mortgage rates jumped again due to high inflation and stronger-than-expected consumer spending," Sam Khater, Freddie Mac's chief economist, said in a statement. "The 30-year fixed-rate mortgage is nearing 4%, reaching highs we have not seen since May 2019. As rates and house prices rise, affordability has become a substantial hurdle for potential home buyers, especially as inflation threatens to place a strain on consumer budgets."
After last week's inflation report, which showed prices rose 7.5% in January, the yield on the 10-year Treasury closed above 2% for the first time since July 2019. It dipped briefly below 2% after concerns about a Russian invasion into Ukraine but has remained above that mark since Tuesday. It closed at 2.03% on Wednesday. The movement of the 10-year Treasury tends to be one of the best indicators of where mortgage rates are headed.
"The main factor pushing rates up last week was consumer price data, which showed prices increasing at the highest rate since early 1982 and broad increases across goods and services," said Paul Thomas, vice president of capital markets at Zillow. "Investors are anticipating aggressive actions by the Federal Reserve to rein in inflation, driving rates higher."
The Fed has been signaling for some time now that it will probably raise its benchmark interest rate in March and that it will reduce its balance sheet. The central bank does not set mortgage rates, but its actions often influence them.
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-five percent said they would go up, 27% said they would go down, and 27% said they would remain the same.
Meanwhile, higher rates caused mortgage applications to recede again last week. The market composite index -- a measure of total loan application volume -- decreased 5.4% from a week earlier, according to Mortgage Bankers Association data. The refinance index fell 9%, down 54% from a year ago when rates were lower. The purchase index slipped 1%. For the fifth week in a row, the average purchase loan size hit a new high. It was $453,000 last week. The refinance share of mortgage activity accounted for 52.8% of applications, dropping to its lowest level since July 2019.
"Prospective buyers still face elevated sales prices in addition to higher mortgage rates," Joel Kan, an association economist, said in a statement. "The heavier mix of conventional applications again contributed to another record average loan size."