Government LendingMortgageMortgage Rates

Mortgage rates jump to 5.78%, largest 1-week increase since 1987

A year ago at this time, 30-year fixed rate purchase rates were at 2.93%

Purchase mortgage rates climbed 55 basis points, reflecting surging inflation and the Federal Reserve‘s (The Fed) tightening monetary policy.

According to the latest Freddie Mac PMMS, purchase mortgage rates this week averaged 5.78%, compared to 5.23% the week prior. A year ago at this time, 30-year fixed rate purchase rates were at 2.93%.

“Mortgage rates surged as the 30-year fixed-rate mortgage moved up more than half a percentage point, marking the largest one-week increase in our survey since 1987,” said Sam Khater, Freddie Mac’s chief economist, according to a statement.

The government-sponsored enterprise index accounts solely for purchase mortgages reported by lenders during the past three days. Another index showed rates greater than 6% this week.

Black Knight’s Optimal Blue OBMMI pricing engine, which includes some refinancing data — but excludes cash-out refis to avoid skewing averages – measured the 30-year conforming mortgage rate at 6.03% Wednesday, up from 5.5% the previous week. 

The 30-year fixed-rate jumbo was at 5.46% Wednesday, up from 4.99% the week prior, according to the Black Knight index. 

Creating a path to success in today’s purchase market

Meeting the needs of a new generation of homebuyers while managing the ebbs and flows of a volatile housing market is a major endeavor for any mortgage lender. So, what should lenders be doing to thrive in the face of a post-pandemic housing market rife with new hurdles?

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Higher rates usually reduce borrowers’ demand for mortgage loans. But, this week, mortgage application volume rose 6.6% from the past week as potential borrowers wanted to guarantee a lower rate: Refi applications increased 4% and purchase apps ticked up 8%, according to the Mortgage Bankers Association.

Overall, mortgage rates are following the Fed’s inflation-fighting monetary policy. Wednesday, the Fed raised the federal funds rate by 75 basis points, to 1.50-1.75%, a hike not seen since 1994. Friday, the inflation price index showed 8.6% increase in May.

And more rates hikes are expected to come out of the Fed meeting in July. During a news conference following the Fed’s committee meeting, Chairman Jerome Powell said: “Either a 50 bps or a 75 bps increase seems most likely at our next meeting.”

However, Powell said the central bank will react to incoming data.

“Any guidance that we give is always going to be subject to things working out about as we expect,” he said. “I like to think though that our guidance is still credible, but it’s always going to be conditional on what happens.”

The Fed’s actions are intended to restore greater balance to supply and demand in the housing market, which now faces inventory problems and rising housing prices.

“Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market,” Khater said.  

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.81% with an average of 0.9 point, up from last week’s 4.38%. The 15-year fixed-rate mortgage averaged 2.24% a year ago.

The 5-year ARM averaged 4.33%, with buyers on average paying for 0.3 point, up from 4.12% the week prior. The product averaged 2.52% a year ago. 

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