Mortgage rates show little change but are expected to move higher

Mortgage rates, which had been on a steady upward march, took a pause in anticipation of the Federal Reserve’s meeting this week.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 3.55% with an average 0.7 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 3.56% a week ago and 2.73% a year ago.

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 ticked up to 2.8% with an average 0.6 points.

It was 2.79% a week ago and 2.2% a year ago. The five-year adjustable rate average rose to 2.7% with an average 0.2 points. It was 2.6% a week ago and 2.8% a year ago.

“The Freddie Mac fixed rate for a 30-year loan steadied this week, in line with longer-term rates,” said Danielle Hale, chief economist at Realtor.com. “This week’s Fed meeting reinforced the idea that interest rates are moving higher, with Fed rate hikes likely to begin as soon as March.”

The Federal Reserve met this week and signaled it would hike its benchmark rate at its next meeting in March, the first increase in three years.

The news came too late in the week to be factored into the Freddie Mac survey.

The central bank has kept the federal funds rate near zero since early in the pandemic. It has also been buying Treasurys and mortgage-backed securities to hold down interest rates.

The Fed indicated it will wind down its bond-buying program by March as well.

“The Federal Reserve made it crystal clear that it plans to raise short-term interest rates at its mid-March meeting,” said Holden Lewis, a home and mortgage expert at NerdWallet.

“The average rate on the 30-year mortgage has already gone up half a percentage point in the last four weeks, and it’s likely that it will continue rising in coming weeks.”

Michael Becker, branch manger at Sierra Pacific Mortgage, said one bullet point in the Fed’s news release will put upward pressure on mortgage rates.

“This likely means they will wind down their holdings of mortgage-backed securities faster than Treasurys and this will cause mortgage rates to rise in the coming week,” Becker said.

The Fed news caused a sell-off in the bond market, pushing the yield on the 10-year Treasury to 1.85% on Wednesday. The 10-year Treasury yield, which ended the year at 1.52%, has risen 33 basis points in less than a month. (A basis point is 0.01 percentage points.)

“In my opinion, tapering and interest rate hikes are already priced into the market,” said Bill Dallas, president of Finance of America Mortgage. “It’s important to keep in mind that mortgage interest rates are still at historic lows and have yet to reach their pre-pandemic levels.”

Melissa Cohn, a regional vice president at William Raveis Mortgage, said there is no reason to panic.

Cohn said she has “yet to see anyone who no longer qualifies for financing because mortgage rates have gone up.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found 80% of the experts it surveyed expect rates to go up in the coming week.

“The Fed has stated it intends to reduce its balance sheet of mortgage-backed securities,” said Elizabeth Rose, a certified mortgage planner at Mortgage300. “This has resulted in [bond prices] plummeting and mortgage rates are on the rise.”

Meanwhile, higher mortgage rates caused applications to fall off last week. The market composite index – a measure of total loan application volume – decreased 7.1% from a week earlier, according to Mortgage Bankers Association data.

The purchase index was down just 2%. The average purchase loan size set a record at $433,500.

The refinance index sank 13%, falling for the fourth week in a row. It is 53% lower than a year ago. The refinance share of mortgage activity accounted for 55.8% of applications.

“After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance,” Joel Kan, an MBA economist, said in a statement. “Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”