As the Federal Reserve raised short-term rates for the first time in years, mortgage rates climbed 31 basis points to 4.16%, according to data from Freddie Mac‘s PMMS survey.
“The 30-year fixed-rate mortgage exceeded four percent for the first time since May of 2019,” said Sam Khater, Freddie Mac’s chief economist. “The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year. While home purchase demand has moderated, it remains competitive due to low existing inventory, suggesting high house price pressures will continue during the spring homebuying season.”
During a highly anticipated meeting on Wednesday, the Federal Reserve raised the benchmark rate a quarter of a percentage point. The Fed said there would likely be six more rate hikes in 2022 and three more in 2023, the primary tool the central bank is using to reduce inflation, which climbed to a 40-year high in February, at an annual rate of 7.9%.
The 30-year-fixed rate rose 31 points from 3.85% for the week ending March 17, according to Freddie Mac. A year ago, the 30-year averaged 3.09%. Freddie Mac assumes borrowers bought 0.8 mortgage points on their loan.
The 15-year fixed-rate mortgage averaged 3.39%, up from 3.09% last week. A year ago, the 15-year fixed-rate mortgage averaged 2.40%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.19% with an average of 0.2 points purchase by borrowers, 22 basis points higher last week. A year ago, the 5-year ARM averaged 2.79%.
The increase in rates in recent months has dramatically chilled refinancing activity in the mortgage market. According to the Mortgage Bankers Association, refi applications this week are down 49% from a year ago, and rate lock data from Black Knight found that refis in February were down to just about one-third of mortgages.
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The seasonally adjusted purchase index increased 1% from one week earlier; the unadjusted purchase index increased 2% from the prior week but was 8% lower than the same week a year ago, largely due to a decline in inventory.
Still, it remains to be seen whether the spoke in mortgage rates back to 2019 levels will chill the purchase market, which in many markets is still defined by low inventory, multiple offers and bidding wars. Zillow reported late last week that inventory dropped to 729,000 home listings in February, a 25% drop year-over-year and a 48% fall since February 2020. It was the fifth consecutive drop in inventory.
While mortgage rates will chill the refi market, the Federal Reserve laying out a clear path ahead should stem some of the volatility with mortgage rates, which have been on a rollercoaster ride for over a month.