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Mortgage Rates Surge Based On Inflation Expectations

Christine Stuart
Jun 16, 2022
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Largest One-Week Increase in Mortgage Rates Since 1987

Based on inflation expectations, mortgage rates jumped 55 basis points this week to 5.78%, the largest one-week increase since 1987, according to Freddie Mac. 

“These higher rates are the result of a shift in expectations about inflation and the course of monetary policy," said Sam Khater, Freddie Mac's chief economist. "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."

The news comes hours after the Federal Reserve Open Market Committee increased rates by three-quarters of a percentage point at its meeting Wednesday. 

Ryan Sweet, chief economist at Moody’s, said there’s not a very strong affiliation between mortgage rates and the federal funds rate. 

“It’s more mortgage rates and the 10-year Treasury Yield, that’s where the relationship is,” Sweet said. “But now, of course, the fed funds rate affects long-term rates, you know the markets expected path of the real fed funds rate that is one of the components of the 10-year Treasury Yield.” 

He said the increase has priced a lot of people out of the market. “It’s going to be very hawkish, and that could drive long-term rates up even higher,” Sweet said. 

He predicted that over the next couple weeks “there’s no where to go but up.” 

According to Freddie Mac's Primary Mortgage Market Survey (PMMS): 

  • The 30-year fixed-rate mortgage averaged 5.78% with an average 0.9 point as of June 16,  up slightly from 5.23% last week. A year ago at this time, the 30-year FRM averaged 2.93%.
  • The 15-year fixed-rate mortgage averaged 4.81% with an average 0.9 point, up slightly from last week when it averaged 4.38%. A year ago, the 15-year FRM averaged 2.24%.
  • The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.33% with an average 0.3 point, up from last week when it averaged 4.2%. A year ago, the 5-year ARM averaged 2.652%.

The PMMS is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.

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