Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to arrive at weekly national averages. The survey is based on mortgages on the purchase of a home. Refinance rates may be different. It uses rates for high quality borrowers with strong credit scores and large down payments. Due to criteria, these rates are not available to all borrowers.
The average of fixed rates over 15 years amounts to 4.38% with an average of 0.8 point. It was 4.32% a week ago and 2.23% a year ago. The five-year adjustable-rate average jumped to 4.12% with an average of 0.3 points. It was 4.04% a week ago and 2.55% a year ago.
Mortgage rates reflected “the rebound in the 10-year Treasury note, which peaked [at] 3% mid-week,” George Ratiu, senior economist and head of economic research at Realtor.com, wrote in an email. “Investors have their eyes on the consumer price index, expecting to see continued gains, albeit at a moderate pace. The data will be an important metric for the Federal Reserve when it meets next week. While not the central bank’s preferred measure of inflation, it is another gauge detailing the health of the economy.
When the Federal Reserve meets next week, investors are anticipating another hike in the federal funds rate. At its May meeting, the Fed raised its key rate by half a percentage point, its largest rate hike in 22 years. Another half-percentage-point increase is on the table this month. The central bank took its first steps towards reducing inflation in March when it raised its benchmark rate for the first time since 2018. Although the Fed does not set mortgage rates, its actions influence them.
“As the Fed continues its aggressive activities — stripping billions from its balance sheet and raising rates — to slow inflation, mortgage rates will rise accordingly,” said Ken H. Johnson, real estate economist at Florida Atlantic University. .
It’s not just the Federal Reserve that is raising interest rates. The European Central Bank announced this week that it would raise its key rate for the first time in 11 years next month to fight inflation. He also said he would end his bond-buying program in July.
Although the Fed’s actions are putting upward pressure on mortgage rates, other factors are pulling them down.
“Rates have continued to fluctuate over the past few weeks as volatility persists,” wrote Robert Heck, vice president of mortgages at Morty, an online mortgage marketplace, in an email. “Overall, the current rate environment continues to reflect uncertainty in the markets, which is largely driven by mixed expectations regarding inflation, the balance sheet reduction and housing supply.”
Bankrate.com, which publishes a weekly index of mortgage rate trends, found that 86% of surveyed experts expect rates to rise in the coming week.
“Inflation continues to dominate every conversation topic, gas, energy, food, etc.,” said James Sahnger, mortgage planner at C2 Financial. “Until this is priced in, higher rates are to be expected. Volatility is also to be expected, so while rates on some days may be better than others, always expect higher direction during the summer.
Meanwhile, mortgage applications continued to decline last week, pushing demand to its lowest level in 22 years. The composite market index – a measure of the total volume of loan applications – fell 6.5% from the previous week, according to data from the Mortgage Bankers Association.
The refinancing index fell 6% from the previous week and was 75% lower than a year ago. The purchase index fell 7%. The refinancing share of mortgage activity accounted for 32.2% of applications.
“Rising mortgage rates continue to dampen borrower demand for refinances and home purchases, with activity for both declining on a weekly and annual basis,” Bob Broeksmit, MBA president and CEO, wrote in an email. “Potential buyers in most markets are still facing too few homes for sale, in addition to rising home prices and mortgage rates. According to the MBA Purchase Demand Payment Index, the national median mortgage payment has increased by more than $360 since the start of 2022.”
The MBA also released its Mortgage Credit Availability Index (MCAI) which showed that credit availability declined in May. The MCAI slipped 0.9% to 120 last month. A decrease in the MCAI indicates that lending standards are tightening, while an increase indicates that they are loosening.
“The supply of mortgage credit fell for the third straight month to the lowest level since July 2021,” MBA economist Joel Kan said in a statement. “The index remains more than 30% below pre-pandemic levels, as a credit crunch has occurred in recent months around refinancing loan programs. Last month’s crunch was most notable in the government and jumbo segments of the mortgage market The decline in government credit was mainly due to a reduction in simplified refinancing programs, as mortgage rates rose sharply in May, slowing refinancing activity. Jumbo, which was beginning to experience a more significant recovery after the 2020 decline, declined after three months of expansion.