Mortgage rates jump for third straight week

Investor reactions to economic data led mortgage rates higher for the third week in a row, deepening concerns about home affordability.

The 30-year fixed interest rate averaged 6.5% for the seven-day period ending Feb. 23, jumping 18 basis points from 6.32% a week earlier. At the beginning of February, the rate had fallen to 6.09%, its lowest reading since September. One year ago, the average rate came in at 3.89%, according to Freddie Mac's Primary Mortgage Market Survey.

Meanwhile, the 15-year fixed rate surged by 25 basis points to average 5.76% compared to 5.51% the previous week. During the same period in 2022, the 15-year average stood at 3.14%.

Recent weekly increases reflect economic trends that have complicated efforts to get inflation under control, according to several economists. 

"The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation," Freddie Mac Chief Economist Sam Khater said in a press release.

Although inflation is slowing, the pace of deceleration still has economists expecting further hikes in the federal funds rate this year, sending mortgage averages upward. They could head even higher over the next several days depending on results of upcoming data releases.

"This week, a higher-than-expected print from the Fed's preferred inflation gauge – the PCE Price index – could cause more policy uncertainty and higher mortgage rate volatility," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans.

The 10-year Treasury yield, which typically influences the direction and size of mortgage rate movements closed at 3.84% on Feb. 16, its highest point since early January. The yield increased even more in the following days, rising to 3.95% on Feb. 21, but had retreated to 3.91% during the noon hour on Thursday.  

Following a consistent downward trend in average rates over the three-month period between November and January, the recent turnaround has brought some of the focus back on home affordability, "eroding" progress made on that front over the past few months, Divounguy said. At the same time rates fell, home prices largely flattened on a monthly basis toward the end of last year.

The latest rate movements have also made an impact on lending businesses, according to the Mortgage Bankers Association. Its Market Composite Index has come in lower in three out of the last four weeks after a promising start to the year. Purchases fell last week to their lowest point since 1995.

"The worst thing, I think, for us in real estate finance is uncertainty," said Kenny Hodges, CEO and president at Assurance Financial. 

"Really, over the last three weeks, we've seen the market has kind of reverted back to uncertainty," he said.

But in an elevated rate environment, what's offered among different lenders can vary widely, Khater said, meaning some potential relief is possible for borrowers. 

"Our research shows that rate dispersion increases as mortgage rates trend up. This means home buyers can potentially save $600 to $1,200 annually by taking the time to shop among lenders," Khater said.