The 30-year fixed average mortgage rate climbed to 3% this week as worries about inflation and the possibility of moves by the Federal Reserve left investors nervous. Data released by Freddie Mac revealed the figures. By comparison, it was 2.94% a week ago and 3.24% a year ago.
Freddie Mac based its figures on the accumulation of rates from 80 lenders across the U.S. to come up with the weekly national average. It only samples rates of high-quality borrowers that have placed large down payments and hold excellent credit scores. As a result of the criteria used, these rates are not available to all borrowers.
The rates for refinancing are likely to be higher, as the figures surveyed are based on home purchase mortgages only.
The fifteen-year average also rose from 2.26% to 2.29%, it was 2.7% a year ago. The five-year average remained unchanged at 2.59%, as compared to last year’s figure of 3.17%.
Much of the nervousness is down to the possibility that the Federal Reserve is about to tighten monetary policy. The Federal Reserve released the minutes from its April meeting a few days ago. In the minutes, Federal officials said they were optimistic about the economy, but some of them are ready to begin reducing the bond-buying program.
Since early in the pandemic, the central bank has been purchasing $120 billion in mortgage-backed securities each month to help support the economy. This has been one of the factors that have helped hold down mortgage rates.
Matthew Speakman, an economist at Zillow was quoted in an email as saying –
“Mortgage rates ticked up this week, in reaction to hints from the Federal Reserve that they may tighten monetary policy. Wednesday’s release of the Fed’s April meeting notes showed that some meeting participants suggested that the central bank could begin to discuss tapering their program of asset purchases — which has placed consistent downward pressure on mortgage rates — should the economy continue to ‘make rapid progress toward the Committee’s goals.’ While this language is far from a commitment to a policy shift and appeared to reiterate previous comments from the central bank, the statement did spark a modest selloff in bonds.”
This was a sentiment that was echoed by Greg McBride, the chief financial analyst at Bankrate, “Looking at the [Federal Reserve] meeting minutes, the Fed might not be thinking about tapering asset purchases, but they are thinking about talking about it. That’ll be enough to spook investors a bit.”
A similar scenario occurred in 2013. The Federal Reserve had undertaken a similar bond-buying program after the housing crash of 2008. In 2013, then chairman Ben Bernanke mentioned that the central bank may begin tapering its purchases, mortgage rates rocketed upwards. Although the Fed is unlikely to reduce spending on bonds in the near future, the mere suggestion that it is being discussed could be enough to rattle jittery investors and send mortgage rates higher still in the weeks to come.