Mortgage rates shoot up to their highest levels since March 2020

A property for sale at 342 Las Casitas Court, Sonoma, on Friday, Dec. 17, 2021. (Photo by Robbi Pengelly/Index-Tribune)
Written by Publishing Team

Mortgage rates have been on a steady upward trajectory since the end of last year. But, this week, they climbed to their highest levels in nearly two years.

According to data released Thursday by Freddie Mac, the 30-year average flat rate rose for the third consecutive week, reaching 3.45% with an average of 0.7 points. (A point is a fee paid to the lender equal to 1% of the loan amount. Added to the interest rate.) The rate was 3.22% a week ago and 2.79% a year ago. The 30-year constant average is at its highest level since March 2020, when it was 3.5%.

Freddy Mac, a federally approved mortgage investor, compiles rates from about 80 lenders across the country to come up with weekly national averages. The survey is based on residential mortgages. Residential refinancing rates may be different. The analysis uses rates for high-quality borrowers, who have strong credit scores and make large down payments. Because of standards, these rates are not available to every borrower.

The 15-year average fixed interest rate jumped to 2.62%, with an average of 0.7 points. It was 2.43% a week ago and 2.23% a year ago. The five-year average adjustable rate rose to 2.57%, with an average of 0.3 points. It was 2.41% a week ago and 3.12% a year ago.

“Freddie Mac’s flat rate for a 30-year loan has maintained its upward momentum this week, riding a strong inflation streak, and following the rally in 10-year Treasuries,” said George Ratio, director of economic research at “Investors noted an acceleration in consumer prices, which rose at the fastest pace in 40 years in December. In addition, the mild effect of the Omicron wave, despite the higher number of cases, points to a brighter prospect after the pandemic, a sentiment that supports a more optimistic view of the economy “.

Mortgage rates are rising due to inflation and the actions of the Federal Reserve. Data from the Bureau of Labor Statistics this week showed prices rose at the fastest pace in four decades in December, up 7% year on year. Inflation is harmful to mortgage rates because of what it does to bonds.

Since inflation erodes the value of fixed bond payments, investors tend to sell Treasurys when inflation rises. Because mortgage rates often follow the same path as long-term bonds, when bond yields rise, so do home loan rates. On Monday, the yield on the 10-year Treasury closed at 1.78%, the highest level in two years. It fell to 1.74% on Wednesday.

The Fed’s decision to speed up the end of its bond-purchasing program to fight inflation also pushed interest rates higher. The central bank indicated in December that it could be more assertive as it rolls back bond purchases, raises interest rates and sells its balance sheet in the next several months.

“Markets have reacted to indications from the Federal Reserve that it will take a more hawkish approach to fighting inflation,” said Paul Thomas, vice president of capital markets at Zillow. “With the latest unemployment rate, many market participants believe this gives the Fed more room to focus on addressing inflation concerns as labor markets approach full employment levels. Additional comments from the Fed indicated that it may shrink its balance sheet faster than expected. Previously, the markets now seem to be anticipating an initial Fed rate hike in March.”

And, which puts together a weekly mortgage rate trend index, found that experts surveyed are divided on where rates will go next week. 46 percent said rates would go down, 31 percent said they would stay the same, and 23 percent said they would rise.

“The long-term trend is in higher mortgage rates,” said Lees Parker, managing director of Transformational Mortgage Solutions. “But after a rapid rise over the past four weeks, expect a drop in prices this week.”

Meanwhile, mortgage applications are higher than they were a week ago. The Market Composite Index – a measure of the total volume of loan applications – rose 1.4% from the previous week, according to data from the Mortgage Bankers Association. The buying index is up 2%, and the refinancing index is basically flat, down 0.1%. Conventional refinancing requests were at their lowest level in two years. The share of mortgage refinancing activity accounted for 64.1% of applications.

“The first week of 2022 saw a significant jump in mortgage rates, strong gains in home purchase orders, and a continuation of the downward trend in refinancing activity,” said Bob Broxsmith, MBA president and CEO. “The affordability that has been hit by higher mortgage rates this year will ease as long as the housing stock increases enough to adjust home price growth to healthy, long-term levels.”

The MBA also released the Mortgage Availability Index (MCAI) showing increased credit availability in December. The MCAI rose 0.8% to 125.9 last month. An increase in MCAI indicates that lending standards are declining, and a decrease indicates a tightening.

“Credit supply increased in December, with growth across the traditional and government sectors of the market,” Joel Kahn, MBA economist, said in a statement. The overall credit index rose to its highest level since May 2021 but remained 30 percent below its pre-pandemic level.

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