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Mortgage rates decline to 3.76% amid Ukraine conflict

A year ago, the 30-year fixed-rate mortgage averaged 3.02%

The average 30-year-fixed rate mortgage declined to 3.76% for the week ending March 3, down from 3.89% in the previous week, amid the geopolitical tensions caused by Russia’s war in Ukraine, according to the latest Freddie Mac PMMS Mortgage Survey.

A year ago, the 30-year fixed-rate mortgage averaged 3.02%. The PMMS report is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. The survey said buyers paid for 0.8 points on average.

According to Sam Khater, Freddie Mac’s chief economist, investors moved to the safety of bonds due to the geopolitical conflict, leading the U.S. Treasury yields to recede this week, which impacted mortgage rates.   

“While inflationary pressures remain, the cascading impacts of the war in Ukraine have created market uncertainty. Consequently, rates are expected to stay low in the short-term but will likely increase in the coming months,” Khater said. 

Mortgage rates usually move in concert with the 10-year Treasury yield, which reached 1.86% yesterday, compared to 1.94% on the previous Wednesday. The 15-year-fixed-rate mortgage averaged 3.01% last week, down from 3.14% the week prior. A year ago at this time, it averaged 2.34%.

Economists have said that the war in Ukraine could bring a short-term reduction in mortgage rates, as investors flock to safe haven assets like mortgage-backed securities and bonds.

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However, longer term inflation brought on by the conflict, mainly via oil prices, will cause mortgage rates to rise.

Federal Reserve Chair Pro Tempore Jerome Powell is expected to raise rates by 25 basis points this month. The first rate increase is expected in a little less than two weeks, coinciding with the March Federal Open Markets Committee meeting, scheduled for March 15 and 16.

The expectation of higher rates are reducing borrowers’ appetite for new loans. Mortgage applications decreased 0.7% for the week ending Feb. 25. Compared to the same week one year ago, applications dropped 41.7%.

The mortgage industry has entered a purchase era, with refinance applications declining last week below 50% of the mix for the first time since June 2019, the Mortgage Bankers Association (MBA) reported on Wednesday.

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