Mortgage rates remained stuck in a holding pattern this week and have barely budged since October.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 3.93 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.94 percent a week ago and 4.16 percent a year ago.
The 15-year fixed-rate average was unchanged at 3.36 percent with an average 0.5 point. It was 3.37 percent a year ago. The five-year adjustable-rate average inched up to 3.36 percent with an average 0.3 point. It was 3.35 percent a week ago and 3.19 percent a year ago.
As was expected by many, the Federal Reserve raised its benchmark rate to 1.5 percent Wednesday. The news came too late in the week to be factored into Freddie Mac’s survey. The government-backed mortgage-backer aggregates rates weekly from 125 lenders from across the country to come up with national average mortgage rates.
The Fed doesn’t set mortgage rates, but its decisions tend to influence them. Because investors had foreseen the hike, several experts dismissed its immediate effect on home loan rates.
“Even though the Federal Open Market Committee has decided to raise its benchmark, short-term interest rate target to its highest level in nine years, don’t expect mortgage rates to rise much,” said Zillow senior economist Aaron Terrazas. “This move has been widely anticipated for several weeks, and the hike was largely priced into markets already. Additionally, a lot of faces will change at the Federal Reserve beginning in 2018 — including a new chair and a new slate of FOMC voters — so markets will probably place less emphasis than usual on [Wednesday’s] news.”
Of more significance may be the central bank’s balance sheet reduction efforts. During the financial crisis, the Fed’s bond-buying program known as quantitative easing helped prop up the economy and keep interest rates low. Now that the economy has regained its footing, the Fed has slowed its purchases and started gradually reducing its holdings.
“Average 30-year fixed mortgage rates reported by Freddie Mac have trended upwards … since the Fed began to reduce its balance sheet [in September] and the FOMC statement reiterated this commitment to balance sheet reduction,” said Tendayi Kapfidze, chief economist at LendingTree.
Several experts predict the Fed’s rate hike will push the rate on 30-year fixed mortgages past the 4 percent mark in the coming months. But higher rates are not all bad, said Realtor.com senior economist Joseph Kirchner.
“Despite decreasing affordability in an already pricey housing market, higher interest rates might have a silver lining for first-time and low-income buyers looking to enter the market,” Kirchner said. Wednesday’s “increase is likely the first of a series in 2018, which could ultimately make it more difficult for financial institutions to sell mortgages and prompt a loosening of qualifying standards.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed were almost equally divided on where rates were headed. About a third predict they will go up, another third say they will go down and another third expect them to hold steady.
Meanwhile, mortgage applications retreated last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — decreased 2.3 percent. The refinance index fell 3 percent, while the purchase index slipped 1 percent.
The refinance share of mortgage activity accounted for 52.4 percent of all applications.
“Due to seasonal weakness in purchase activity, the refinance share of applications increased to 52.4 percent, the highest share since January 2017,” said Joel Kan, an MBA economist. “The refinance index dropped 2.5 percent over the week, driven by a 3.2 percent decrease in conventional refinance and an 8.3 percent decrease in VA refinances. Purchase applications decreased 1.1 percent over the week, but were 10.2 percent higher than the same week a year ago.”
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