Mortgage rates start month with less volatility than stock market

While the stock and bond markets have been on a wild ride, mortgage rates have been fairly placid the last few weeks.

According to the latest data released Thursday by Freddie Mac, the 30-year, fixed-rate average was unchanged at 3.55% with an average 0.8 of a 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 2.73% a year ago.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders nationwide 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 fell to 2.77% with an average 0.7 of a point. It was 2.8% a week ago and 2.21% a year ago.

The five-year adjustable rate average inched up to 2.71% with an average 0.3 of a point. It was 2.7% a week ago and 2.78% a year ago.

“The economy lost some momentum in January, leaving mortgage rates unchanged from last week and relatively flat for the third consecutive week,” Sam Khater, chief economist at Freddie Mac, said in a statement.

“This stagnation reflects the economic impact of the Omicron variant of COVID-19, which we believe will subside in the coming months.” he continued. “As economic recovery continues going into the spring and summer, mortgage rates are expected to resume their upward trajectory.”

Danielle Hale, chief economist at Realtor.com, warned that borrowers shouldn’t be lulled by how steady rates have seemed in the past few weeks.

“The apparent stability in weekly rates averages out some bigger day-to-day swings in both mortgage and other long-term rates, so home shoppers should be prepared for a bit less calm than the weekly data suggests,” Hale said.

It may be difficult to remember, but a little more than three years ago, the 30-year fixed rate was marching toward 5%.

In November 2018, it reached 4.94%. Then the pandemic hit and sent mortgage rates tumbling to record lows.

Now they are being driven higher by inflation and moves by the Federal Reserve.

The Federal Reserve indicated last month that it would raise the federal funds rate in March.

The first increase to the benchmark rate in three years will probably send mortgage rates higher.

Although the Fed doesn’t set home loan rates, its decisions often influence them.

To stimulate the economy, the Fed has kept the federal funds rate near zero since early in the pandemic.

It bought Treasurys and mortgage-backed securities, which put downward pressure on rates.

But these measures seem to be coming to an end. Fed Chair Jerome Powell has signaled that the central bank will be raising rates, ending its bond-buying next month and reducing its balance sheet holdings over time.

How these steps will affect mortgage rates remains to be seen.

“The one thing I have learned in following rates and the Fed all these years is that the market is always ahead of the Fed, and they factor in coming changes from the Fed before the Fed actually makes a move or even announces,” said Mitch Ohlbaum, a mortgage banker at Macoy Capital Partners.

But it is not just the Fed that has sway over mortgage rates, though admittedly its influence has been outsize recently.

Global events and economic data can also impact their trajectory.

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

“Investors in mortgages continue to digest the shift in Fed policy,” said Les Parker, managing director of Transformational Mortgage Solutions. “The geopolitical issues and confusion about the jobs data help reduce rates near term.”

Meanwhile, borrowers scrambling to take advantage of what is likely the last of the low rates caused mortgage applications to jump last week.

The market composite index – a measure of total loan application volume – increased 12% from a week earlier, according to Mortgage Bankers Association data.

The refinance index climbed 18%, while the purchase index grew 4%. For the third week in a row, the average purchase loan size hit a new high.

It was $441,100 last week. The refinance share of mortgage activity accounted for 57.3% of applications.

“Homeowners are refinancing before rates move even higher,” said Bob Broeksmit, president and chief executive of the MBA. “The purchase market also ended January on a high note, as the strong labor market and rising wages continue to generate interest in buying a home.”