Mortgage rates put their rapid rise on hiatus this week ahead of next week’s Federal Reserve meeting.
Freddie Mac, the federally chartered mortgage investor, collects rates from about 80 lenders across the country to arrive at weekly national averages. The survey is based on home purchase loans. Prices for refinancing may be different. It uses rates for high quality borrowers who have strong credit scores and make large payouts. Due to the criteria, these rates are not available to all borrowers.
The 15-year fixed-rate average rose to 4.4 percent with an average of 0.9 points. That was 4.38 percent a week ago and 2.31 percent a year ago. The five-year adjustable interest rate average ticked up to 3.78 percent with an average of 0.3 points. It was 3.75 percent a week ago and 2.64 percent a year ago.
“After a rapid acceleration in the first three months of the year, mortgage rates are still rising – just not that fast,” said Holden Lewis, a housing and mortgage expert at NerdWallet. ‘The Federal Reserve is expected to raise short-term interest rates by half a percentage point next week. It is twice as large as the typical Fed increase, and the predicted increase is already built into mortgage rates. “
When the Federal Reserve meets next week, officials are expected to raise the benchmark rate again. In March, the central bank took its first steps toward bringing inflation down by raising the federal funds rate by a quarter of a percentage point, the first rate hike since 2018.
In the six weeks since that increase, the 30-year fixed interest rate average has risen by nearly one percentage point from 4.16 percent to 5.1 percent. Although events – Russia’s war in Ukraine, covid-lockdowns in China, fears of a recession – may overtake the Fed’s actions, it is unlikely that mortgage rates will soon turn the course. The Federal Reserve does not set mortgage rates, but its actions do affect them.
In addition to raising federal funds rates, the Fed is also expected to announce its plans to reduce its balance sheet. How quickly it removes mortgage-backed securities from its portfolio can also affect how quickly mortgage rates rise.
“Investors look to price 50 basis point rate hikes at each of the next four meetings of the Federal Open Market Committee,” said Paul Thomas, vice president of capital markets at Zillow. “Interest-rate markets remain volatile as investors balance the timing and volume of Federal Reserve action against the risks of a short-term recession, along with uncertainty in Ukraine and potential impacts on the global economy.”
It is not only rising interest rates that make 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, which FHFA considers “high balance” or mortgages for holiday homes, are now more expensive.
High-balance loans are over-the-top national mortgage loans ($ 647,200). Fees for high-balance loans increased between 0.25 percent and 0.75 percent, broken down by loan-to-value ratio. Fees for other home loans increased between 1.125 percent and 3.875 percent, broken down by loan-to-value ratio.
Bankrate.com, which publishes a weekly trend index for home loans, found that the experts it surveyed disagreed on where interest rates are heading in the coming week. 44 percent say rates will rise, 33 percent say they will fall, and 22 percent say they will remain roughly the same.
Dick Lepre, a senior lending manager at RPM Mortgage, does not expect interest rates to move much in the coming week.
“Uncertainty rules and improvements in returns can only be corrections to a massively oversold market,” Lepre said. “There is no sign that inflation is declining and the long-term trend is still higher interest rates on debt.”
On the other hand, Ken H. Johnson, a real estate economist at Florida Atlantic University, predicts that prices will fall.
“Shaki in the stock markets is driving capital into the bond markets,” Johnson said. “This causes interest rates to fall on bonds. Ten-year government bonds are no exception. Thus, lower interest rates on 10-year government bonds will lead to lower mortgage rates. Long-term mortgage rates should fall slightly next week.”
Meanwhile, mortgage applications fell again last week. The market’s composite index – a measure of total loan application volume – fell 8.3 percent from a week earlier, according to data from the Mortgage Bankers Association.
The refinancing index fell 9 percent and was 71 percent lower than a year ago. The purchase index fell 8 per cent. The refinancing share of the mortgage activity accounted for 35 percent of the applications.
“Mortgage rates are now more than two percentage points higher than a year ago and have risen for seven consecutive weeks, leading to a significant drop in refinancing applications,” said Bob Broeksmit, MBA president and CEO.
“Refinances last week accounted for only 35 per cent of all applications, down from 61 per cent a year ago. Housing demand during the spring buying season is strong across the country, but higher prices and steep house price rises are increasingly a major obstacle for some potential buyers. Purchasing activity declined again on a weekly and annual basis. “