Mortgage rates’ upward trajectory was halted by developments in Ukraine.
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 slipped to 3.14 percent with an average 0.7 point. It was 3.15 percent a week ago and 2.34 percent a year ago. The five-year adjustable-rate average was unchanged at 2.98 percent with an average 0.3 point. It was 2.99 percent a year ago.
“Mortgage rates were fairly flat last week,” said Paul Thomas, vice president of capital markets at Zillow. “There were no signs of changes in labor markets, as employment figures remain strong. Retail sales were stronger than expected and import prices pointed to continued inflationary pressures. But the strong economic data from last week was offset by continued uncertainty in Ukraine, keeping rates from continuing to increase. Markets will be focused on the situation in Ukraine this week and potential economic impacts, along with inflation data coming out Friday.”
Although Russia’s attack on Ukraine came too late in the week to be factored into Freddie Mac’s survey, events leading up to it had already caused a reaction in the financial markets. Stocks plunged, with the S&P 500 entering correction territory. Energy prices soared. And the yield on the 10-year Treasury dropped below 2 percent.
Long-term bond yields are a closely watched indicator of where mortgage rates are headed because they often follow the same path. The yield on the 10-year Treasury, which had closed at 2.05 percent on Feb. 15, has remained under 2 percent the past week. However, it closed at 1.99 percent on Wednesday.
“We live in a global economy, so as much as interest rates are swayed by domestic policy, current world events have a marked impact on interest rate direction as well. Russia is a prime example of this,” said Nicole Rueth, producing branch manager at the Rueth Team. “People start selling out their higher risk, higher return options, such as bitcoin and stocks, for the safer lower return of bonds. We’ve seen this increased demand increase bond prices and pull the 10-year Treasury back below 2 percent. As Russia changes their tune to be more diplomatic one day and more aggressive the next, our bond prices and yields react, giving [the Federal Reserve] a run for their money on their effect on today’s rates.”
But Rueth notes that actions by the Federal Reserve in the coming months will affect mortgage rates’ trajectory, as well.
“As the Fed raises their Fed rate, tapers their balance sheet and tries to control a runaway inflation affected not only by supply chain issues and excessive demand but now by Russia’s determination, we will all watch long-term interest rates play a stressful game of tug of war,” she said. “I continue to advise my clients to not lock in a rate based on fear, but on the impact that rate has on the payment and their budget. And if the Fed does raise the Fed rate enough to control inflation, slowing down the economy causing the 2- and 10-year Treasurys to invert and an impending economic slowdown, well then we will see long-term rates go down and refinance opportunities return.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found nearly two-thirds of the experts it surveyed expect rates to move higher in the coming week.
“The Russia-Ukraine situation has contributed to additional volatility in financial markets, but may also contribute to additional inflationary pressures,” said Greg McBride, chief financial analyst at Bankrate.com.
Meanwhile, mortgage applications sank to their lowest level in more than two years last week. The market composite index — a measure of total loan application volume — decreased 13.1 percent from a week earlier, according to Mortgage Bankers Association data. Applications were at their lowest level since December 2019.
The refinance index fell 16 percent, down 56 percent from a year ago. The purchase index dropped 10 percent. The refinance share of mortgage activity accounted for 50.1 percent of applications.
“Purchase applications have fallen for three straight weeks and remain slightly below year-ago levels,” said Bob Broeksmit, president and chief executive of MBA. “Mortgage rates are almost a full percentage point higher than in early 2021, which has also cooled refinances. Activity has decreased in six of the last seven weeks.”