Mortgage rates creep closer to 7%: Freddie Mac

The 30-year fixed rate mortgage rose 15 basis points last week to just shy of the 7% mark, according to Freddie Mac. However, other rate trackers moved more in line with the 30-basis-point drop in the benchmark 10-year Treasury yield since Monday.

Freddie Mac's Primary Mortgage Market Survey put the 30-year FRM at 6.96% for July 13, up from 6.81% seven days prior and 5.51% for the same period one year ago. The 15-year FRM increased just 6 basis points week-to-week, to 6.3% from 6.24%. For this week in 2022, it was 4.67%.

It is the highest level since the last time the Freddie Mac PMMS broke 7% in November.

"Incoming data suggest that inflation is softening, falling to its lowest annual rate in more than two years," Sam Khater, Freddie Mac chief economist, said in a press release. "However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand."

On July 6, the 10-year Treasury broke through the 4% ceiling and at one point on July 10 it peaked at 4.09% before falling back to 3.79% as of noon on July 13.

That translated to the 30-year FRM topping 7% between last Thursday and Monday, before ending July 12 averaging 6.85% according to data from the Black Knight Optimal Blue product and pricing engine.

It also explains why the headline rate on the Mortgage Bankers Association's Weekly Application Survey, which covers the period ended on July 7, was over 7%.

Zillow's rate tracker put the 30-year FRM at 6.61% on Thursday morning, down 2 basis points from Wednesday and 17 basis points from last week's average of 6.78%.

A more positive than expected Consumer Price Index report was the driver for the bond yield and mortgage rate drops, said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a Wednesday afternoon statement.

"The Fed appears to be making progress on its difficult task of achieving a soft landing," Divounguy said. "Inflation is slowly and steadily receding despite stubbornly high wage growth, with strong GDP data pointing to a resilient U.S. economy."

But future bond yield and mortgage rate drops are not a certainty. "Stronger-than-expected economic data and still-high core inflation suggest the decline in bond yields and mortgage rates could be short-lived, making subsequent downward mortgage rate moves far from a sure thing," Divounguy said.

Expectations remain for a 25 basis point hike in short-term rates at the July Federal Open Market Committee meeting, although the CPI report is giving hope that it would be the last one.

"Just because the flames have calmed down for now doesn't mean the ingredients for a flare-up aren't still there," said Marty Green, a principal at mortgage law firm Polunsky Beitel Green, in a comment on the CPI release. "But the continued progress on the inflation front should relieve the pressure on the Federal Reserve to tighten interest rates further after the July increase, which should in turn have a positive impact on mortgage rates."