May 5 Mortgage Rates
Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to arrive at weekly national averages. The survey is based on mortgages on the purchase of a home. Refinance rates may be different. It uses rates for high quality borrowers with strong credit scores and large down payments. Due to criteria, these rates are not available to all borrowers.
The average of fixed rates over 15 years amounts to 4.52% with an average of 0.8 points. It was 4.4% a week ago and 2.3% a year ago. The average variable rate over five years rose to 3.96% with an average of 0.2 points. It was 3.78% a week ago and 2.7% a year ago.
“Mortgage rates have risen again this week, just as they have risen almost every week since the start of the year,” said Holden Lewis, home and mortgage specialist at NerdWallet. “The mortgage market is reacting to soaring prices and the Federal Reserve‘s campaign to control inflation. The Fed raised short-term interest rates by half a percentage point at its May meeting, and mortgage rates had already risen in anticipation of that and future rate hikes. Wednesday’s half-percentage-point increase was expected. With even more Fed rate hikes expected in the coming months, mortgage rates could continue to rise.
Wednesday’s increase in the Federal Reserve’s benchmark rate was the biggest one-step increase since 2000. The news came too late in the week to factor into Freddie Mac’s survey. The federal funds rate is now between 0.75% and 1%.
The central bank also released its plans to reduce its holdings. The Fed, which has $9 trillion of Treasuries and mortgage-backed securities on its balance sheet, will allow them to mature without reinvesting them. Starting in June, it will allow up to $30 billion in Treasury bills and $1.75 billion in mortgage-backed securities each month. Starting in September, it will allow $60 billion in Treasuries and $35 billion in mortgage-backed securities to come out each month. At this time, the Fed does not plan to sell its assets on the open market.
Wednesday’s “vote alone shouldn’t trigger another spike in mortgage rates,” said Danielle Hale, chief economist at Realtor.com. “Rather, the broader statement language, including the $17.5 [billion] to $35 billion in agency debt and mortgage-backed securities that the Fed will begin to allow off the balance sheet each month, and [Fed] Chair [Jerome H.] Powell’s discussion at the post-meeting press conference is the influencers that matter.
The Fed does not set mortgage rates, but its actions tend to influence them.
“What matters at this point in the cycle is not just the actions of the Fed, but their actions relative to expectations,” Hale said. “This means there is both upside and downside risk to mortgage rates. If the Fed continues to focus on inflation and the rate hikes and balance sheet shrinking it deems necessary to rein in price growth, it will reinforce the current market view and keep mortgage rates rising. … If the Fed shows a hint of hesitation in its resolve to contain inflation, markets could expect a slower upward trajectory, which would give rates some breathing room.
Investor concerns that the Fed was considering a bigger rate hike pushed long-term bond yields higher this week. The 10-year Treasury yield broke through the 3% mark on Monday before closing at 2.99%. It fell back to 2.93% on Wednesday after Powell indicated the Fed was not considering raising the federal funds rate by 75 basis points. (One basis point is 0.01 percentage point.)
It’s not just rising interest rates that are making home loans more expensive. Effective April 1, the Federal Housing Finance Agency implemented increased fees for certain Fannie Mae and Freddie Mac home loans. Mortgages that the FHFA considers “high balance” or mortgages for second homes are now more expensive.
High balance loans are mortgages above the national compliant benchmark limit ($647,200). Fees for high balance loans have increased by 0.25 to 0.75%, depending on the loan-to-value ratio. Fees for second home loans increased between 1.125% and 3.875%, scaled by loan-to-value ratio.
Bankrate.com, which publishes a weekly index of mortgage rate trends, found that half of surveyed experts expect rates to rise in the coming week, but the rest are split. Twenty-five percent said rates would stay the same, while the remaining 25% said they would drop.
Michael Becker, Branch Manager at Sierra Pacific Mortgage, is the one predicting rates will drop over the coming week.
“The Fed delivered what the markets expected today,” Becker said. “Jay Powell also ruled out the possibility of a 75 basis point increase in the near future. Treasuries and mortgage-backed securities rallied on that comment. improve or decrease very slightly over the coming week.
Meanwhile, mortgage applications rose last week for the first time in two months. The composite market index – a measure of the total volume of loan applications – rose 2.5% from the previous week, according to data from the Mortgage Bankers Association.
The refinancing index remained stable, up just 0.2% from the previous week and 71% lower than a year ago. The purchases index increased by 4%. The refinancing share of mortgage activity accounted for 33.9% of applications.
“Mortgage applications rose for the first time since early March, with a 4% gain in buying activity offsetting a further decline in refinances,” Bob Broeksmit, MBA president and CEO, wrote in an email. “With mortgage rates now more than two percentage points higher than last year, more and more potential buyers are applying for variable rate mortgages, which typically offer a lower rate that can still be fixed up to ‘in 10 years. The 9% share of ARM apps in recent weeks remains significantly lower than the 30% share seen 15-20 years ago. »