Mortgage rates soar to their highest levels in 11 years

For the first time in more than a decade, the average 30-year fixed mortgage rate in the United States hit 5%.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 5% with an average 0.8 point. (A point is a fee paid to a lender equal to 1% of the loan amount. It is in addition to the interest rate.) It was 4.72% a week ago and 3.04% a year ago. The last time the 30-year fixed average was above 5% was February 2011.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The 15-year fixed-rate average jumped to 4.17% with an average 0.9 point. It was 3.91% a week ago and 2.35% a year ago. The five-year adjustable rate average rose to 3.69% with an average 0.3 point. It was 3.56% a week ago and 2.8% a year ago.

“The Freddie Mac fixed rate for a 30-year loan maintained its momentum this week, as markets reacted to the latest data on consumer prices, which accelerated in March to a pace not seen since 1981,” George Ratiu, manager of economic research at Realtor.com, said. “After approaching 2.8% early this week, the 10-year Treasury retreated slightly, as investors equated the slight moderation in the core consumer price index with a signal that we’ve hit peak inflation. However, hopes of a cooling may be premature, given the jump in producer prices, which advanced at the fastest pace on record.”

Mortgage rates are being driven higher by rising inflation. The consumer price index, released Tuesday by the Bureau of Labor Statistics, showed prices grew 8.5% in March compared with a year ago. It was the largest annual increase since December 1981. On Wednesday, the BLS released the March producer price index, which tracks prices paid by wholesalers. It climbed 11.2% from a year ago, its biggest gain since 2010.

Inflation causes fixed-income investments like bonds to lose value, which is why investors demand more in return for holding them. When yields rise sharply, it’s because investors want to be paid more for lending long term.

This week, the 10-year Treasury hit 2.79% on Monday. It crept back down the past few days, closing at 2.7% on Wednesday. The 10-year yield started the year at 1.63% and a little more than a month ago was below 2%.

Because mortgage rates tend to follow the same path as long-term bonds, they have been trending higher as well.

“Inflation pushes mortgage rates upward in two ways,” Holden Lewis, home and mortgage expert at NerdWallet, said. “First, interest is the price we pay for money, and the price of money goes up like everything else. Second, the Federal Reserve raises interest rates to control inflation. Those forces are working together to lift mortgage rates higher.”

It is not only rising rates that are making 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 that FHFA considers “high balance” or mortgages for a second home are now more expensive.

High-balance loans are mortgages above the conforming national baseline limit ($647,200). Fees for high-balance loans increased between 0.25 and 0.75%, tiered by loan-to-value ratio. Fees for second home loans increased between 1.125 and 3.875%, tiered by loan-to-value ratio.

Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed expect rates to go up in the coming week.

“The Fed is in full-on sell mode of 10-year Treasury notes,” Ken H. Johnson, real estate economist at Florida Atlantic University, said. “Last week over 20% of the volume in the 10-year market was Fed selling. With that amount of one-sided activity, long-term mortgage rates, which track the yields on 10-year Treasury notes, can only go up.”

Meanwhile, mortgage applications fell again last week. The market composite index, a measure of total loan application volume, decreased 1.3% from a week earlier, according to Mortgage Bankers Association data.

The refinance index slid 5% and was down 62% from a year ago. Refinance application volume remains at its lowest level since spring 2019. The purchase index ticked up 1%. The refinance share of mortgage activity accounted for 37.1% of applications.

“Higher rates are increasing borrower interest in ARMs,” Joel Kan, an MBA economist, said in a statement. “Their share of applications last week was at 7.4%, which was the highest share since June 2019. In a promising sign of strong purchase demand amidst affordability challenges, both conventional and government purchase applications increased.”