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. 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 ticked up to 2.24 percent with an average 0.6 point. It was 2.23 percent a week ago and 2.58 percent a year ago. The five-year adjustable rate average dropped to 2.52 percent with an average 0.3 point. It was 2.55 percent a week ago and 3.09 percent a year ago.
“Mortgage rates spent most of the week on a modest downward trajectory, but ultimately ended up higher following statements from the Federal Reserve,” said Matthew Speakman, a Zillow economist. “In the past several weeks, mortgage rates have proven resilient to several economic data reports which typically push them firmly higher. The Federal Reserve’s insistence that recent inflation figures were transitory and that any changes to monetary policy wouldn’t be necessary until the economy showed far more substantial progress has kept rates at bay for months.”
After the Federal Reserve’s two-day policy meeting this week, central bank officials indicated they would consider raising their benchmark interest rate as soon as 2023. Previously, they signaled rate hikes were unlikely until 2024. The Fed has left interest rates near zero since March 2020.
The Federal Reserve does not set mortgage rates, but its decisions influence them.
“Everyone thinks interest rates will go up soon, but I’m not so sure that will be the case given the recent employment numbers and the record number of job openings we saw for April,” said Bill Dallas, president of Finance of America Mortgage. “The Fed is trying to figure that out now and they’ll be paying close attention to employment numbers over the coming months, especially as extra unemployment benefits are phased out in the second half of this year.”
Federal Reserve Chair Jerome H. Powell also said the committee is considering talking about a plan to reduce its bond buying but added “we will provide advance notice before announcing any decision to make changes to our purchases.”
After the Great Recession when the Fed unexpectedly reduced its bond-buying purchases it set off a “taper tantrum” in the market, sending mortgage rates soaring. The Fed has been buying about $120 billion each month in Treasury and mortgage-backed securities, which has helped hold down mortgage rates.
After Wednesday’s announcement, stocks fell and bond yields rose. The yield on the 10-year Treasury jumped to its highest level in more than a week, closing at 1.57 percent.
“More upward movements [in bond yields and mortgage rates] are likely on the way in the coming days,” Speakman said. “So, while policy remains accommodative, these more hawkish signals from the Fed may finally usher in some meaningful upward movements in mortgage rates.”
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.
“Minutes after the Fed meeting, 10-year Treasury yields started to climb and equity markets were down,” said Ken H. Johnson, a real estate economist at Florida Atlantic University. “Both are signs that financial markets believe the Fed will be taking actions a bit sooner — though not right now — than earlier anticipated. This week’s mortgage rates should rise slightly on this wishy-washy news from the Fed.”
Meanwhile, mortgage applications bounced back from their three-week slump last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — increased 4.2 percent from a week earlier. Refinances led the way. The refinance index climbed 6 percent, while the purchase index gained 2 percent. The refinance share of mortgage activity accounted for 61.7 percent of applications.
“Mortgage applications rebounded after three consecutive weeks of declines,” said Bob Broeksmit, MBA president and CEO. “Borrowers acted on another decrease in mortgage rates, with refinance and purchase applications both posting solid gains. Home buyer demand continues to be strongest at the entry-level portion of the market, and those prospective buyers were active last week despite very low inventory levels. Government purchase applications — VA, FHA, and USDA loans — jumped nearly 5 percent.”
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