June 16 Mortgage Rates

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Last week’s higher-than-expected inflation data prompted a rapid escalation in mortgage rates.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed rate average climbed to 5.78% with an average of 0.9 points. (A point is a commission paid to a lender equal to 1% of the loan amount. It is added to the interest rate.) It was 5.23% a week ago and 2.93% a week ago. one year old. The 55 basis point increase is the biggest one-week jump since 1987. (One basis point equals 0.01 percentage points.) The 30-year fixed average hasn’t been this high since November 2008 .

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 15-year fixed rates climbed to 4.81% with an average of 0.9 points. It was 4.38% a week ago and 2.24% a year ago. The average of the adjustable rates over five years rose to 4.33% with an average of 0.3 points. It was 4.12% a week ago and 2.52% a year ago.

“The Freddie Mac fixed rate for a 30-year loan continued to climb this week in response to last week’s inflation data and in anticipation of this week’s increase in the target federal funds rate,” said Hannah Jones. , economic data analyst at Realtor.com. . “While rates tracked by Freddie Mac remain in the high fives, other mortgage surveys showed interest rates topping 6% early this week in response to inflation data that rose to 8 .6% in May.”

The Federal Reserve this week approved its largest interest rate hike since 1994, raising its benchmark rate by 0.75 percentage points. The rate hike is the third this year by the Fed as it tries to tame inflation. At its May meeting, the central bank raised the federal funds rate by half a percentage point. It took its first steps towards lower 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.

Fed raises interest rates by largest amount since 1994 to fight inflation

“The annual inflation rate accelerated unexpectedly to 8.6% in May, and mortgage rates will not have much reason to fall as long as inflation remains high,” said Holden Lewis, specialist home and mortgage loans at NerdWallet. “The Federal Reserve raised short-term rates by 0.75 [percentage point] to slow economic growth and control inflation.

Investors had widely anticipated the aggressive move, which is why long-term bond yields have soared this week. The 10-year Treasury yield hit its highest level in more than a decade, hitting 3.49% on Tuesday before falling back to 3.33% after the Fed’s announcement. At the start of the year, the yield was 1.63%.

“The 30-year mortgage rate tends to track the yield of the 10-year Treasury and the 10-year Treasury just hit its highest yield in 11 years,” wrote Steve Reich, chief operating officer at Finance of America. Mortgage, in an email. “The 10-year Treasury is rising because investors are anticipating rate hikes in the future. As a result, we have also seen mortgage rates follow suit and rise recently. In the short term, mortgage rates will likely continue to trend higher. similar range and to keep pace with the 10-year Treasury yield.”

Lewis expects mortgage rates to be less volatile in the near future.

“Mortgage rates tend to go up and down in anticipation of Fed rate moves, which is a way of saying that the Fed increase has already been priced into mortgage rates,” he said. . “In other words, mortgage rates are more likely to go up or down before Fed meetings than after Fed meetings. Over the next week or two, we probably won’t see any big moves in mortgage rates like we did last week.

The Fed has signaled that another 0.75 percentage point hike could also be on the table next month, although Federal Reserve Chairman Jerome H. Powell told reporters after the meeting that he did not expect movements of this magnitude to be common.

“Given that consumer price inflation hit a 40-year high last week, it is very possible that the Fed will take a more hawkish stance on inflation and raise rates at a faster pace than expected. initially,” Reich wrote. “While there is always the possibility of rates falling later in the year depending on the Fed’s inflation forecast, we can probably expect to see mortgage interest rates continue to rise over the next few months. coming months.”

Bankrate.com, which publishes a weekly index of mortgage rate trends, found experts surveyed to be mixed as to which direction they expect rates to go in the coming week. Forty percent said they will go down, 40% said they will stay the same and 20% said they will go up.

Dick Lepre, loan officer at CrossCountry Mortgage, predicts lower rates.

“Last week’s massive rise in Treasury yields and mortgage rates should lead to a week of modest respite,” Lepre said.

But Greg McBride, chief financial analyst at Bankrate.com, predicts rates will remain stable.

“Will the Fed’s aggressive move be enough to keep rising bond yields and mortgage rates in check?” McBride said. “Unless and until inflation peaks, it will only be temporary.”

Meanwhile, rising rates continue to dampen mortgage applications. Even though the total number of requests rebounded slightly last week from the previous week, which was adjusted for the Memorial Day holiday, volume was down more than 50% from a year ago.

The composite market index – a measure of the total volume of loan applications – rose 6.6% from the previous week, according to data from the Mortgage Bankers Association. The refinancing index rose 4% from the previous week, but was 76% lower than a year ago. The buy index rose 8%. The refinance share of mortgage activity accounted for 31.7% of applications, the second lowest percentage since December 2000.

“Mortgage applications rose for the first time in five weeks, with purchase and refinance activity posting solid gains even as mortgage rates climbed,” wrote MBA President and CEO Bob Broeksmit in an email. “Despite the jump in purchase requests last week, high inflation, rapidly rising mortgage rates and rising house prices have cooled the housing market. The new MBA forecast predicts that sales of new homes and will fall below 2021 levels.”

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