Mortgage rates have been on a steady upward march since the end of last year. This week, they shot up to their highest levels in nearly two years.
According to data released Thursday by Freddie Mac, the 30-year fixed-rate average rose for the third week in a row, hitting 3.45%. The rate was 3.22% a week ago and 2.79% a year ago.
The Federal Home Loan Mortgage Corp. -- the federally chartered mortgage investor know as Freddie Mac -- aggregates rates from about 80 lenders across the country to come up with weekly national averages. The survey is based on residential mortgages. Rates for residential refinances may be different. The analysis uses rates for high-quality borrowers, those who have strong credit scores and make large down payments. Because of the criteria, these rates are not available to every borrower.
The 15-year fixed-rate average jumped to 2.62% from 2.43% a week ago and 2.23% a year ago. The five-year adjustable-rate average climbed to 2.57% from 2.41% a week ago. It was 3.12% a year ago.
"The Freddie Mac fixed rate for a 30-year loan maintained its upward momentum this week, riding a strong inflationary wave, and following the surge in the 10-year Treasury," said George Ratiu, manager of economic research at Realtor.com.
Mortgage rates are rising because of inflation and actions by the Federal Reserve. Data from the Bureau of Labor Statistics this week showed prices rose at the fastest pace in four decades in December, increasing 7% year-over-year. Inflation is bad for mortgage rates because of what it does to bonds.
Because inflation erodes the value of bonds' fixed payments, investors tend to sell Treasurys when inflation is rising. Because mortgage rates often follow the same path as long-term bonds, when bond yields rise, so do home loan rates. On Monday, the yield on the 10-year Treasury closed at 1.78%, its highest level in two years. It fell back to 1.74% on Wednesday.
The Fed's decision to accelerate the winding down of its bond-buying program to fight inflation is also pushing rates higher. The central bank signaled in December that it might be more assertive with pulling back on bond purchases, raising interest rates and selling off its balance sheet in the next several months.
Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed divided on where rates are headed this week. Forty-six percent said rates would go down, 31% said they would stay about the same and 23% said they would go up.
"The long-term trend points to higher mortgage rates," said Les Parker, managing director of Transformational Mortgage Solutions. "But after a rapid rise over the last four weeks, expect a drop in rates this week."
Meanwhile, mortgage applications were up from a week ago. The market composite index -- a measure of total loan application volume -- increased 1.4% from a week earlier, according to data from the Mortgage Bankers Association. The purchase index rose 2%, and the refinance index was essentially flat, ticking down 0.1%. Conventional refinance applications were at their lowest level in two years. The refinance share of mortgage activity accounted for 64.1% of applications.