The average long-term U.S. mortgage rate hit a three-month high this week, reflecting higher Treasury yields and expectations that the Federal Reserve will continue to raise its benchmark rate and keep it there until inflation recedes.
Mortgage buyer Freddie Mac reported Thursday that the average on the benchmark 30-year rate rose to 6.65 percent from 6.5 percent last week. The average rate a year ago was 3.76 percent.
The average long-term rate reached a two-decade high of 7.08 percent in the fall as the Fed continued to raise its key lending rate in a bid to cool the economy and quash persistent, four-decade high inflation.
Rates came down this winter as it appeared inflation was steadily declining. But recent economic data reveal a still-hot economy and stubborn inflation. The recent rise in mortgage couldn’t come at worse time for the slumping housing market, on the verge of its spring buying season.
At its first meeting of 2023 in February, the Fed raised its benchmark lending rate by another 25 basis points, its eighth increase in less than a year. That pushed the central bank’s key rate to a range of 4.5 percent to 4.75 percent, its highest level in 15 years.
Fed Chair Jerome Powell noted at the time that some measures of inflation have eased, but appeared to suggest that he foresees two additional quarter-point rate hikes this year. Minutes from that meeting released last week mostly corroborated that view, but the reemergence of higher prices along with some strong economic reports in recent weeks has some analysts forecasting more than two rate increases this year, including perhaps another half-point increase, to a range of 5.25 percent to 5.5 percent.
While the Fed’s rate hikes do impact borrowing rates across the board for businesses and families, rates on 30-year mortgages usually track the moves in the 10-year Treasury yield, which lenders use as a guide to pricing loans. Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Federal Reserve does with interest rates can also influence the cost of borrowing for a home.
In recent days, the 10-year Treasury yield settled back above 4 percent for the first time since November.
The big rise in mortgage rates during the past year has battered the housing market, with sales of existing homes falling for 12 straight months to the slowest pace in more than a dozen years. January’s sales cratered by nearly 37 percent from a year earlier, the National Association of Realtors reported on Tuesday.
Earlier in the week, the Mortgage Bankers Association reported nationwide purchase mortgage applications reached the lowest level since 1995.
Mortgage applications of all types for the week ending Feb. 24 decreased 5.7 percent on a seasonally adjusted basis from one week earlier, the MBA said in a statement. On an unadjusted basis, the MBA’s weekly mortgage tracker showed a 4 percent decrease compared to the previous week.
After increasing during the week ending Feb. 3, purchase and refinance activity declined in each of the past three weeks. The MBA’s refinance activity tracker decreased 6 percent from the previous week and was 74 percent lower compared to the same week a year ago. The seasonally adjusted purchase activity tracker decreased 6 percent from a week earlier. The unadjusted purchase activity decreased 3 percent compared to a week earlier and was 44 percent lower than the same week one year ago.
Joel Kan, MBA’s vice president and deputy chief economist, said in the statement that mortgage rates faced upward pressures as data on inflation, employment and economic activity indicated that inflation might not be cooling as quickly as anticipated.
Registry Review staff writer Diane McLaughlin contributed to this report.
