Mortgage rates back over 7% on inflation comments

Average mortgage rates as tracked by Freddie Mac rose back above 7% following what some termed weak investor response at Treasury auctions as well as reaction to strident comments by Federal Reserve officials about inflation.

The 30-year fixed rate mortgage averaged 7.03% on May 30, a gain of 9 basis points over last week when it averaged 6.94%. For the same week in 2023, the 30-year FRM was 24 basis points lower at 6.79%.

"More hawkish commentary about inflation and tepid demand for longer-dated Treasury auctions caused market yields to rise across the board," said Sam Khater, Freddie Mac chief economist, in a press release. "This reality, as well as economic signals that have moved sideways over the last few weeks, have resulted in mortgage rates drifting higher as markets continue to dial back expectations of interest rate cuts."

As for the 15-year FRM this week, its average increased 8 basis points week-to-week to 6.36%, from 6.24% and up 18 basis points year-over-year from an average of 6.18%.

The movement came after another week where the 10-year Treasury yield rose steadily, to a close of 4.62% on Wednesday from 4.43% on the same day one week earlier. In trading on Thursday morning, it dropped back to 4.56% as of 11 a.m. Eastern time.

Another source that had rates barely above the 7% mark one week ago, increased substantially, according to information from product and pricing engine provider Lender Price posted on the National Mortgage News.

The 30-year FRM was at 7.275% at 11:15 a.m. on Thursday morning, Lender Price said, up from 7.03% one week earlier.

Zillow's rate tracker had the 30-year fixed up a massive 20 basis points over the previous week's average, to 6.91% from 6.71%.

Those gains were attributed to investor worries over the size of the U.S. government's debt, said Orphe Divounguy, senior economist at Zillow Home Loans.

"The Federal Reserve Beige Book, released this week, pointed to a slowing U.S. private sector — a sign that inflation could slow," said Divounguy in a Wednesday afternoon statement. "But while slower consumer spending is expected to pull economic growth and inflation lower, rising government deficit spending could offset this drag."

Divounguy is worried about an imbalance between supply and demand for U.S. Treasuries, especially the longer duration ones like the 10-year, that will put upward pressure on the yields and in turn, mortgage rates.

In a May 29 note, investment banker Louis Navellier wrote "Interest rates, which had marched down the first two weeks of May, following [Federal Reserve Chairman] Jerome Powell dismissing the possibility of a rate increase, but have since retraced most of that move, as the timing of a rate cut kept getting pushed farther down the calendar by 'Fed Speak' and the undeniable reality that if the Fed is really sticking to their 2% target inflation that it probably will take many more months, given the strength of the economy, employment, and spending."

The National Association of Realtors released its April pending home sales report on Thursday morning. These were down 7.7% month-to-month and 7.4% versus 2023, which NAR blamed on higher mortgage rates.

"Household income remains strong as the labor market continues to demonstrate resiliency, yet mortgage rates remain elevated in the Fed's 'higher-for-longer' interest rate environment," Odeta Kushi, deputy chief economist at First American Financial, said in comments on the pending sales report.

"If the Fed cuts rates later this year, all else held equal, it should result in lower mortgage rates, boosting affordability and bringing buyers off the sidelines," Kushi continued.