Mortgage rates shot up this week.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 3.99 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.95 percent a week ago and 4.12 percent a year ago.
The 15-year fixed-rate average grew to 3.44 percent with an average 0.5 point. It was 3.38 percent a week ago and 3.37 percent a year ago. The five-year adjustable rate average ticked up to 3.46 percent with an average 0.4 point. It was 3.45 percent a week ago and 3.23 percent a year ago.
Mortgage rates often follow the same path as long-term bonds. When bond prices are falling and yields are rising, home loan rates usually move higher. In the past week, the yield on the 10-year Treasury has risen to 2.55 percent, its highest level since March.
One reason bond prices are lower is because central banks around the world are pulling back on their bond purchases. The Bank of Japan curbed its bond-buying program. A Bloomberg report suggested that China may slow its purchases of U.S. bonds. The Federal Reserve began shrinking its balance sheet last fall.
“Mortgage rates are still lower than they were a year ago, but the momentum is clearly on an upward trend, as markets grapple with a growing consensus that the American economy is at full capacity, softer international demand for U.S. debt, and larger fiscal deficits on the horizon,” said Aaron Terrazas, a senior economist at Zillow. “Inflation and consumer spending data due this week could reinforce the narrative of a strong U.S. economy, particularly if December retail sales are in line with or above expectations.”
Bond gurus Bill Gross of Janus Henderson Group and Jeff Gundlach of DoubleLine Capital both declared this week bonds are in a bear market, which could signal higher mortgage rates ahead.
Bankrate.com, which puts out a weekly mortgage rate trend index, found that almost two-thirds of the experts it surveyed say rates will move higher in the coming week. Greg McBride, chief financial analyst at Bankrate.com, is one who expects rates to go up.
“Bond yields are surging due to inflation worries and the uptick in economic performance, and will take mortgage rates along for the ride,” McBride said.
Meanwhile, mortgage applications moved higher to start the new year, according to the latest data from the Mortgage Bankers Association. The market composite index – a measure of total loan application volume – increased 8.3 percent from a week earlier. The refinance index shot up 11 percent, while the purchase index climbed 5 percent.
The refinance share of mortgage activity accounted for 52.9 percent of all applications.
“Overall, application activity increased last week after accounting for the New Year’s Day holiday, taking us back to levels of activity last seen in early December, both in terms of purchase and refinance applications,” said Joel Kan, an MBA economist. “This was likely a catch-up week for potential borrowers as we head into the new year.”
The MBA also released its mortgage credit availability index (MCAI) this week that showed credit availability decreased in December. The MCAI fell 1.8 percent to 179.2 last month. A decline in the MCAI indicates that lending standards are tightening, while an increase signals they are loosening.
“In December a handful of investors made end of the year adjustments to their menu of offerings,” Lynn Fisher, MBA’s vice president of research and economics, said in a statement. “This resulted in a net decrease in credit availability for government backed programs (FHA/VA/USDA), and especially for lower credit score, higher loan-to-value loans, as well as streamline (requiring less documentation) refinances. Despite the decline in the jumbo credit availability over the month, the jumbo index was up nearly 20 percent from December a year ago, by far the largest gain among the component indices.”
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