Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. 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 survey is based on home purchase mortgages, which means rates for refinances may be higher. The price adjustment for refinance transactions that went into effect in December is adding to the cost. The adjustment, which applies to all Fannie Mae and Freddie Mac refinances, is 0.5 percent of the loan amount. That works out to $1,500 on a $300,000 loan.
The 15-year fixed-rate average dropped to 2.26 percent with an average 0.6 point. It was 2.3 percent a week ago and 2.72 percent a year ago. The five-year adjustable rate average tumbled to 2.59 percent with an average 0.3 point. It was 2.7 percent a week ago and 3.18 percent a year ago.
“Since the most recent peak in April, mortgage rates have declined nearly a quarter of a percent and have remained under three percent for the past month,” Sam Khater, chief economist at Freddie Mac, said in a statement. “The low mortgage rate environment has been a boon to the housing market but may not last long as consumer inflation has accelerated at its fastest pace in more than twelve years and may lead to higher mortgage rates in the summer.”
Last week’s weaker-than-expected jobs report for April is likely to have caused mortgage rates to move lower. However, that report was followed closely by a spike in consumer prices. The Labor Department’s consumer price index jumped 4.2 percent. That was enough to cause bond yields to rise, but too late in the week to be factored into Freddie Mac’s survey.
“The results of the two reports place the Federal Reserve in a difficult position and adds fresh uncertainty to mortgage rates’ path forward,” said Matthew Speakman, an economist at Zillow. “While Friday’s weaker-than-expected jobs report helped to bolster the central bank’s stance of maintaining loose monetary policy until more progress is made in the labor market, Wednesday’s inflation figures are perhaps the toughest test yet of the Fed’s commitment to this approach. In theory, a steep uptick in inflation would force the central bank to tighten policy by hiking interest rates or slowing the pace of bond purchases. But for now, Fed officials have downplayed the risks associated with Wednesday’s report, asserting that the sharp increase in prices will be temporary. Any shifts away from this outlook will place more upward pressure on mortgage rates.”
The yield on the 10-year Treasury hit its highest level in a month this week, rising to 1.69 percent on Wednesday. Yields are inversely related to price. When prices drop, yields rise.
Investors have been shedding bonds, causing prices to fall, because they fear inflation. Inflation is the scourge of bonds because it erodes the value of future payments. Investors usually sell Treasurys when they believe the economy is heating up and inflation is growing.
Rising yields tend to push mortgage rates higher because of the close relationship between long-term bonds and home loan rates.
“Investors had plenty of bond supply to choose from this week, and inflation data showed a huge pickup in prices,” said Danielle Hale, chief economist at Realtor.com. “Although an increase was expected, core inflation, which excludes relatively volatile food and energy prices, saw its biggest one-month surge in 39 years. The last time inflation surged this high in one month, Freddie Mac’s 30-year mortgage rate was 16.9 percent. While I don’t expect double-digit mortgage rates any time soon, I do expect mortgage rates to follow Treasury yields higher as the combination of abundant supply and concerns about inflation, mean that investors expect higher returns.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed expect rates to rise in the coming week.
“Concerns about inflation are rattling investors and will drive bond yields and mortgage rates higher,” said Greg McBride, chief financial analyst at Bankrate.com.
Meanwhile, falling rates spurred mortgage applications last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — increased 2.1 percent from a week earlier. The purchase index only ticked up 1 percent from the previous week, but the refinance index rose 3 percent. The refinance share of mortgage activity accounted for 61.3 percent of applications.
“The decline in mortgage rates last week … led to a jump in mortgage demand,” said Bob Broeksmit, MBA president and CEO. “Refinance applications increased to a two-month high, with loan balances rising for the fourth straight week. Despite ongoing supply and affordability challenges, interest in buying a home is strong. Purchase applications increased on a weekly and annual basis and were 2.4 percent higher than the same week two years ago” before the pandemic.
The MBA also released its mortgage credit availability index (MCAI) that showed credit availability increased in April. The MCAI grew 2.2 percent to 128.1 last month. An increase in the MCAI indicates lending standards are loosening, while a decrease signals they are tightening.
“Credit availability rose in April, fueled by a 5 percent increase in conventional mortgage credit, as well as an expansion in agency programs for [adjustable-rate mortgages] and high-balance loans,” Joel Kan, an MBA economist, said in a statement. “The uptick in credit supply comes as the housing market and economy continue to strengthen. One trend that has developed in recent months is the rising demand for ARMs, driven by higher rates for fixed mortgages and faster home-price appreciation. Despite this month’s increase, mortgage credit supply has not returned to pre-pandemic levels.”
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