Why Mortgage Rates Keep Rising and Falling This Year

  • The average US fixed rate for a 30-year mortgage rose to 5.22% this week from 4.99% the previous week.
  • Mortgage rates have oscillated several times in 2022.
  • A housing expert says it’s because inflation has a big impact on the Treasury market.

In recent years, historically low mortgage rates have prompted millions of Americans to buy homes.

But pandemic-era mortgage deals are over and rates have been stuck on a proverbial swing for weeks.

The average US fixed rate for a 30-year mortgage was 5.22% this week, Freddie Mac reported in its weekly mortgage market survey. The rate has soared from last week’s reading of 4.99% and represents a considerable increase from a pandemic low of 2.68% in December 2020.

“The 30-year fixed rate rallied to more than 5% this week, a reminder that recent volatility remains lingering,” Sam Khater, chief economist at Freddie Mac, told Insider.

Mortgage rates have fluctuated as the Federal Reserve tries to curb inflation by raising interest rates. Rate hikes coupled with soaring house prices have made housing much less affordable for many potential buyers, leading many to wonder when mortgage rates will stabilize. But as the volatility in the economy seeps into the real estate market, they might be waiting a while.

Lien Kiefer, an economist at Freddie Mac, told Insider that’s because mortgage rates largely depend on inflation as well as economic activity in the U.S. and global financial markets — and for the moment, the outlook looks bleak.

“Inflation has a big impact on the Treasury market, which is kind of the linchpin that drives a lot of the activity,” he said.

The Treasury market is a key part of the US and global financial systems. Treasury bills are seen as a predictable investment and are backed by the US government. However, soaring inflation coupled with aggressive increases in the Fed’s overnight funds rate – a measure of banks’ funding costs – has driven Treasury yields higher this year.. Kiefer says this has helped influence mortgage rate volatility.

“The money that the bank or lender is going to provide to a consumer comes from loans that are securitized in the secondary market, which means they’re looking at what the investors in that market are looking at, which is often the 10-year Treasury yield,said Kieffer.

“What happens in the Treasury market is going to influence funding costs for investors in mortgage-backed securities,” he said. If something translates into higher yields on Treasuries or MBS, lenders will respond with higher rates for consumers, he added.

Kiefer says this ultimately influences the costs a borrower will pay for their mortgage.

“There is a lot of uncertainty around the path of inflation and the overall economy and as views on this change market participants are adjusting and this is affecting the pricing of Treasuries. , which then enters the mortgage market.”

According to Keifer, this is the crux of mortgage rate volatility.

“I expect we will continue to see some volatility throughout this year as market expectations and conditions evolve,” he said. “We could very well see rates go down from what they are, but they could also very easily go up a bit.”

In June, the average US fixed rate for a 30-year mortgage nearly reached 6%, according to data from Freddie Mac. As rates rise, buyers of a median-priced home are now looking at monthly mortgage payments more than $400 higher than they were just a year ago.

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