Mortgage rates reach highs not seen in more than two years

Recent strong employment reports caused mortgage rates to return to pre-pandemic highs.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average jumped to 3.69% with an average 0.8 points. (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 3.55% a week ago and 2.73% a year ago. The last time the 30-year fixed average was this high was January 2020.

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 climbed to 2.93% with an average 0.8 points. It was 2.77% a week ago and 2.19% a year ago.

The five-year adjustable rate average rose to 2.8% with an average 0.3 points. It was 2.71% a week ago and 2.79% a year ago.

“The Freddie Mac fixed rate for a 30-year loan resumed its upward momentum this week after a three-week hiatus,” said George Ratiu, manager of economic research at Realtor.com. “Rates increased along with the surge in the 10-year Treasury which passed 1.9% this week.

“The stronger-than-expected employment report for January and rising inflation are keeping investors bullish on the economy and the expected rate hikes from the Federal Reserve in the first half of the year,” he continued. “With rising rates, mortgage applications to purchase a home declined last week, as many first-time buyers were priced out of the market.”

January’s better-than-expected employment report pushed long-term bond yields to their highest level in years.

The U.S. economy added 467,000 jobs in January, and the unemployment rate grew to 4% as more people looked for work.

The data suggested a resilient economy despite a surge in coronavirus cases due to the omicron variant.

“Payroll data released late last week showed much stronger than anticipated job and wage growth, as many expected some slowdown due to the surge in covid-19 cases in January,” said Paul Thomas, vice president of capital markets at Zillow.

“All of this points to more hawkish expectations for the Federal Reserve, driving interest rates higher. Markets are pricing in further rate hikes.”

Investors reacted to the news by sending the yield on the 10-year Treasury to 1.96% on Tuesday, its highest close since July 2019.

It slipped to 1.94% on Wednesday. The movement of the 10-year Treasury tends to be one of the best indicators of where mortgage rates are headed.

Consumer price index data, released Thursday morning, showed prices rose 7.5% in January compared to a year ago, the fastest inflation since 1982.

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.

“As inflation goes, so go mortgage rates,” said Elizabeth Rose, sales manager at Mortgage300.

Bankrate.com, which puts out a weekly mortgage rate trend index, found more than three-quarters of the experts it surveyed expect rates to continue to rise in the coming week.

“A stronger-than-expected jobs number last Friday not only left economists stunned but also signals liftoff to the Fed and rate hikes,” said Gordon Miller, owner of Miller Lending Group. “Mortgage rates will likely drift higher as the market now guesses at the size of the rate hike in March.”

Meanwhile, mortgage applications tailed off last week.