NEW YORK – Mortgage rates were slightly higher this week as investors waited to see what they could decipher from the minutes of January’s Federal Reserve meeting.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 4.40 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.38 percent a week ago and 4.16 percent a year ago. The 30-year fixed rate hasn’t been this high since April 2014.
The 15-year fixed-rate average ticked up to 3.85 percent with an average 0.5 point. It was 3.84 percent a week ago and 3.37 percent a year ago. The five-year adjustable rate average edged up to 3.65 percent with an average 0.4 point. It was 3.63 percent a week ago and 3.16 percent a year ago.
The Federal Reserve released the minutes from its January meeting Wednesday, too late in the week to impact Freddie Mac’s survey. The government-backed mortgage-backer aggregates rates weekly from 125 lenders from across the country to come up with national average mortgage rates.
The Fed doesn’t set mortgage rates, but its decisions influence them. With increased economic growth, increased consumer spending and an uptick in inflation, the chances the central bank will move on rates grew.
“Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate,” the Federal Reserve said in the minutes.
Translation: The Fed is likely to raise short-term rates in March at its next meeting.
“Mortgage rates have climbed rapidly due in part to the U.S. economy showing signs of being at full capacity, and greater federal spending following the recent tax reform and federal budget negotiations,” Aaron Terrazas, Zillow senior economist, wrote in an email. “Home shoppers thinking about buying this spring should be aware of how their mortgage rate affects the long-term costs of buying a home.”
Rising interest rates, rising home prices and scarcity of homes for sale already have had an impact on the spring housing market. Existing-home sales fell for the second consecutive month in January.
“It is not shocking to see that home sales are declining and falling short of expectations,” said Brian Surgener of BBMC Mortgage. “Mortgage rates continue to rise as well as home prices. Between those two mechanics, affordability is going to get squeezed.”
Even though they remain at historical lows, mortgage rates are at four-year highs and buyers are beginning to feel priced out of the market.
“Just by waiting about six weeks to buy a home, someone buying the typical U.S. home would be paying an extra $564 per year on their mortgage,” Terrazas said. “Over the life span of a 30-year mortgage, that adds up to nearly $17,000. In more expensive markets, the increase is even higher.”
Meanwhile, mortgage applications slumped again last week as rates rose, according to the latest data from the Mortgage Bankers Association. The market composite index – a measure of total loan application volume – decreased 6.6 percent from a week earlier. The refinance index sank 7 percent, while the purchase index fell 6 percent.
The refinance share of mortgage activity accounted for 44.4 percent of all applications.
“With mortgage rates at four-year highs, it’s no surprise to see [application] volume fall off a bit as a result,” Mike Fratantoni, MBA’s chief economist, wrote in an email. “Purchase applications are still running about 3 percent ahead of last year at this time, but this upward move in rates is coming right at the start of the spring buying season and is a head wind.”