Freddie Mac: Interest Rates Inch Back Up

Mortgage rates rose again after several weeks of small declines, reaching 3.10%, Freddie Mac reported Thursday.

Freddie’s Primary Mortgage Market Survey (PMMS) found that the 30-year fixed-rate mortgage (FRM) averaged 3.10%, up from last week’s 2.98%. A year ago at this time, the 30-year FRM averaged 2.72%

“The combination of rising inflation and consumer spending is driving mortgage rates higher,” said Sam Khater, Freddie Mac’s Chief Economist.

“Shoppers looking to buy a home are fueling strong demand while ongoing inventory shortages are not improving in the presence of higher home prices. This reality illustrates the challenging situation facing the housing market.”

Though the holidays are usually a slow period in the industry, homebuyer demand has remained high. Redfin’s latest Homebuyer Demand Index hit an all-time high. The report shows the market speeding up, with an increasing number of homes selling in two weeks or less and demand increasing even as listings trend down. 

Inflation is currently at a 30-year high, with consumer prices jumping 6.2% YOY. Though the Fed previously insisted that high inflation is a temporary problem, they have since walked back those assurances.

Housing inflation has been flagged in particular by former treasury secretary Larry Summers, who has been critical of the Fed’s approach to the economy during the pandemic.

 “Given lags in the indices, housing inflation is almost certain to soar in the coming months,” Summers wrote.

He’s not alone in this thinking. Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni also said he expects housing inflation to continue. “We’re really pretty confident that [housing costs] are going to keep rising even after some of the things like used car prices and other things that are directly related to supply-chain constraints revert,” he said during an interview on Fox Business.

“Those things are going to be transitory once those supply chain issues go away. But I think the shelter price component is going to persist for a long time – like years.”

Additional findings from Thursday’s report:

  • 15-year fixed-rate mortgage averaged 2.39% with an average 0.6 point, up from last week when it averaged 2.27%.
  • A year ago at this time, the 15-year FRM averaged 2.28%.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.49% with an average 0.3 point, down from last week when it averaged 2.53%. 
  • A year ago at this time, the 5-year ARM averaged 2.85%.