With inflation intensifying, the average rate on 30-year mortgages jumped to 5.77 percent this week from 5.55 last week, according to Bankrate’s national survey of large lenders.
The Federal Reserve raised rates three-quarters of a percentage point last month, a move that portended rising mortgage rates. The central bank is ramping up efforts to fight inflation, which has remained high after a bout of pandemic stimulus. In June, annual price increases clocked in at 9.1 percent.
The rise hasn’t been straight upward. Mortgage rates are being whipsawed by concerns that the U.S. economy will contract. The Fed doesn’t directly control fixed mortgage rates — the most pertinent number is the 10-year Treasury yield, and it has bounced around in recent weeks. Even so, high inflation all but forces the Fed to act aggressively, and it sets the tone for rates overall.
“Because inflation is still climbing, debt must become more expensive,” says Derek Egeberg of Academy Mortgage in Yuma, Arizona. “The low-rate train has left the station and isn’t due back anytime soon.”
Mortgage rates have been on a wild ride as of late. In the days before the Fed meeting, mortgage rates briefly reached 6 percent.
A year ago, the benchmark 30-year fixed-rate mortgage was 3.11 percent. Four weeks ago, the rate was 5.78 percent. The 30-year fixed-rate average for this week is 2.77 percentage points higher than the 52-week low of 3 percent.
The 30-year fixed mortgages in this week’s survey had an average total of 0.45 discount and origination points.
Over the past 52 weeks, the 30-year fixed has averaged 4.02 percent.
- The 15-year fixed-rate mortgage rose to 4.83 percent, from 4.69 percent last week.
- The 5/6 adjustable-rate mortgage (ARM) rose to 4.87 percent from 4.77 percent a week ago.
- The 30-year fixed-rate jumbo mortgage was 5.21 percent, up from 5.19 percent last week.
Where mortgage rates are headed
With inflation gathering steam, the expectation for mortgages rates is that they’ll keep rising. For now, borrowers are continuing to feel the pinch, and some are being priced out altogether.
“Usually with high inflation, you’d think that interest rates would continue to climb higher, but with consumer expectations in the dumps and paychecks failing to keep up with inflation, there is simply less money to spend,” says Jim Sahnger of C2 Financial Corp. in Jupiter, Florida.
With inflation running hot, the Fed has indicated it intends to raise rates several times in the coming months, including at the end of July. What’s more, the Fed is selling off some of the securities it bought to stave off the coronavirus recession.
“We’re well aware that mortgage rates have moved up a lot, and you’re seeing a changing housing market,” Fed Chairman Jerome Powell told reporters in June. “We’re watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. We’re watching that quite carefully.”
As rates rise, the refinancing boom of 2020 and 2021 is firmly in the rearview. Rate-and-term refinance activity dropped by 80 percent in the first quarter of 2022, according to mortgage data firm Black Knight. The name of the game now for homeowners sitting on mounds of equity: cash-out refinances, which accounted for 75 percent of refinances in the first quarter.
Home purchases sluggish as rates rise
In a disconnect, home prices have been soaring even as mortgage rates rise. The median price for existing houses sold in May was $407,600, up 15 percent from May 2021, the National Association of Realtors reports, while sales have fallen for the fourth month in a row.
“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past months,” said Joel Kan, associate vice president of economy and industry forecasting at the Mortgage Bankers Association, in a recent statement. “These worsening affordability challenges have been particularly hard on first-time buyers.”
Economists had expected rates to rise by the end of 2022, but the surge in rates in recent months has many forecasters wondering what comes next. As mortgage rates climb toward 6 percent, competition remains intense among those who can afford to buy. That pool is steadily shrinking, with mortgage applications recently falling to a 22-year low, according to the Mortgage Bankers Association.