Mortgage rates rise ahead of expected Fed rate hike

The latest weekly survey data from Freddie Mac shows the 30-year fixed-rate mortgage rose to an average of 6.02% this week ahead of the Federal Reserve’s much-anticipated interest rate hike next week. Daily mortgage rate calculators are showing 30-year fixed rates at 6.30% and above.

A year ago at this time, rates averaged 2.86%.  

“Mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding six percent for the first time since late 2008,” said Sam Khater, Freddie Mac’s chief economist. The index compiles only purchase mortgage rates reported by lenders during the past three days.   

Inflation rose more than expected in August as rising shelter and food costs offset a drop in gas prices, adding weight to markets speculating the Fed will enact a 75 bps increase at its Federal Open Market Committee (FOMC) meeting on September 20 and September 21. 

The consumer price index, which tracks a range of goods and services to keep track of inflation, rose 0.1% in August and 8.3% year-over-year, according to the Bureau of Labor Statistics.

Inflation data shows the energy index fell 5.0% from the month prior while increases in the shelter (+0.7%), food (+0.8%), electricity (+1.5%), natural gas (+3.5%) and medical care (+0.7%) indexes were the largest contributors to the higher-than-expected inflation levels. 

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Treasury yields leaped higher, as the 2-year note, most closely tied to the Fed’s interest rate moves, surged 33 bps to 3.78% on Wednesday from the prior week. 

On HousingWire’s Mortgage Rates Center, Black Knight’s Optimal Blue OBMMI pricing engine measured the 30-year conforming mortgage rate at 6.124% on Wednesday, up from 5.950% the previous week. Meanwhile, the 30-year fixed-rate jumbo was at 5.821% Wednesday, up from 5.587% the week prior. 

Pressure on rates has reduced demand for mortgage loans, according to the Mortgage Bankers Association (MBA). The market composite index, a measure of mortgage loan application volume, declined 1.2% for the week ending Sep. 9. The refinance index had a 4.2% decline from the previous week, and the purchase index was marginally down 0.15%.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 5.21% with an average of 0.9 points, up from last week’s 5.16%. The 15-year fixed-rate mortgage averaged 2.12% a year ago. 

The 5-year ARM averaged 4.93% this week, up from 4.64% the previous week. The product averaged 2.51% a year ago.

For prospective buyers, lack of inventory is still an issue although increase in rates will continue to dampen demand and put downward pressure on home prices, according to Khater.

“This indicates that while home price declines will likely continue, they should not be large.” Khater said. 

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