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Mortgage rates spike to their highest level in nearly 13 years

The 30-year fixed average hasn’t been this high since August 2009

The 30-year fixed-rate average rose to 5.27 percent this week and has gone up more than two percentage points in the past year. (Washington Post)
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After a brief pause, mortgage rates resumed their rapid ascent this week.

According to data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 5.27 percent with an average 0.9 point. (A point is a fee paid to a lender equal to 1 percent of the loan amount. It is additional to the interest rate.) It was 5.1 percent a week ago and 2.96 percent a year ago. The 30-year fixed average, which hasn’t been this high since August 2009, has gone up more than a percentage point in just two months and more than two percentage points in the past year.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 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 rose to 4.52 percent with an average 0.8 point. It was 4.4 percent a week ago and 2.3 percent a year ago. The five-year adjustable rate average grew to 3.96 percent with an average 0.2 point. It was 3.78 percent a week ago and 2.7 percent a year ago.

“Mortgage rates rose again this week, just as they’ve gone up almost every week since the beginning of the year,” said Holden Lewis, a home and mortgage specialist at NerdWallet. “The mortgage market is responding to skyrocketing prices and the Federal Reserve’s campaign to get inflation under control. The Fed raised short-term interest rates by half a percentage point at its May meeting, and mortgage rates already had gone up in anticipation of this and future rate increases. Wednesday’s half-a-percentage-point increase was expected. With even more Fed rate increases expected in future months, mortgage rates might keep going up.”

Wednesday’s increase of the Federal Reserve’s benchmark rate was the largest one-step boost since 2000. The news came too late in the week to be factored into Freddie Mac’s survey. The federal funds rate is now between 0.75 percent and 1 percent.

Fed hikes rates by half a percentage point in fight against inflation

The central bank also released its plans for reducing its asset holdings. The Fed, which has $9 trillion of Treasurys and mortgage-backed securities on its balance sheet, will allow them to mature without reinvesting them. Starting in June, it will allow as much as $30 billion of Treasurys and $1.75 billion of mortgage-backed securities to roll off each month. Beginning in September, it will allow $60 billion of Treasurys and $35 billion of mortgage-backed securities to roll off each month. At this time, the Fed does not plan to sell its assets on the open market.

Wednesday’s “vote alone is unlikely to spark a new surge in mortgage rates,” said Danielle Hale, the chief economist at Realtor.com. “Rather, the broader statement language, including the $17.5 [billion] to $35 billion in agency debt and mortgage-backed securities that the Fed will begin to allow to run off of the balance sheet each month, and [Fed] Chair [Jerome H.] Powell’s discussion in the press conference following the meeting are the influencers that matter.”

The Fed does not set mortgage rates, but its actions tend to influence them.

“What matters at this stage in the cycle is not only the Fed’s actions, but their actions as compared to expectations,” Hale said. “This means there’s both upside and downside risk for mortgage rates. If the Fed continues to focus on inflation and the rate increases and balance sheet reduction it believes are needed to tame price growth, that will reinforce the current market view and keep mortgage rates climbing. … If the Fed shows any hint of hesitancy in its resolve to rein in inflation, markets could expect a slower path of increases, which would give rates a bit of breathing room.”

Investors’ concerns that the Fed was contemplating a bigger rate hike pushed long-term bond yields higher this week. The yield on the 10-year Treasury crossed the 3 percent mark on Monday before closing at 2.99 percent. It fell back to 2.93 percent on Wednesday after Powell indicated that the Fed has no plans to raise the federal funds rate by 75 basis points. (A basis point is 0.01 percentage point.)

It is not only rising rates that are making home loans more expensive. As of April 1, the Federal Housing Finance Agency implemented a fee increase for some Fannie Mae and Freddie Mac home loans. Mortgages that the FHFA considers “high-balance” or mortgages for second homes are now more expensive.

High-balance loans are mortgages above the conforming national baseline limit ($647,200). Fees for high-balance loans increased between 0.25 and 0.75 percent, tiered by loan-to-value ratio. Fees for second-home loans increased between 1.125 and 3.875 percent, tiered by loan-to-value ratio.

Bankrate.com, which puts out a weekly mortgage rate trend index, found that half the experts it surveyed expect rates to go up in the coming week, but the remainder were divided. Twenty-five percent said rates would stay the same, while the other 25 percent said they would fall.

Michael Becker, a branch manager at Sierra Pacific Mortgage, is one who predicts rates will ease in the coming week.

“The Fed delivered what markets were expecting today,” Becker said. “Jay Powell also ruled out the possibility of a 75-basis-point increase in the near future. Treasurys and mortgage-backed securities rallied on this comment. I think this will help mortgage rates improve or move lower ever so slightly in the coming week.”

Meanwhile, mortgage applications were higher last week for the first time in two months. The market composite index — a measure of total loan application volume — increased 2.5 percent from a week earlier, according to Mortgage Bankers Association data.

The refinance index was flat, up just 0.2 percent from the previous week and 71 percent lower than a year ago. The purchase index rose 4 percent. The refinance share of mortgage activity accounted for 33.9 percent of applications.

“Mortgage applications increased for the first time since early March, with a 4 percent gain in purchase activity offsetting another decline in refinances,” Bob Broeksmit, MBA’s president and chief executive, wrote in an email. “With mortgage rates now more than two percentage points higher than last year, more prospective buyers are applying for adjustable-rate mortgages, which typically offer a lower rate that can still be fixed for up to 10 years. The 9 percent share of ARM applications in recent weeks remains significantly below the 30 percent share of activity observed 15 to 20 years ago.”

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