Mortgage rates soar to highest level in months amid inflation concerns

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Mortgage rates soared to the highest level since mid-November this week, a troubling sign for home buyers navigating a market defined by rapidly rising home prices. The 30-year fixed rate mortgage averaged 2.81% during the week ending February 18, eight basis points higher than the previous week, Freddie Mac FMCC, + 0.28% reported Thursday. The increase comes after three weeks in which the 30-year mortgage rate stood at 2.73%.

The 15-year fixed-rate mortgage rose two basis points to an average of 2.21%, while the 5-year Treasury-indexed adjustable-rate hybrid mortgage fell two basis points to 2.77%. “Economic spending has improved, due to the most recent stimulus, but supply chain tightness is causing downward inflation, leading to higher mortgage rates,” said Sam Khater, chief economist at Freddie Mac, in the report. . The rate hike was inevitable, said Zillow ZG, + 2.30% economist Matthew Speakman, because mortgage rates had not risen in tandem with Treasury yields. Historically, mortgage rates have followed the direction of long-term bond yields, including the 10-year Treasury TMUBMUSD10Y, 1.339%. But throughout the pandemic, that relationship has weakened somewhat, with mortgage rates falling to record lows well above the levels that bond yields fell to. That gap has given mortgage lenders some freedom when it comes to adjusting interest rates. But this week, the lenders did the same. In particular, this week’s strong retail sales report has raised concerns about inflation. Investors also appear to be increasingly cautious that increased tax relief and accelerated economic growth through increased vaccination rates could translate into higher inflation, something that would reduce the value of fixed bond payments. and it would possibly lead the Federal Reserve to raise interest rates and put more upward pressure on yields and mortgage rates, ”Speakman said. “While that remains to be seen, given that mortgage rates remain very low by historical standards, this shift in market outlook seems to suggest that the days of historically low rates may be a thing of the past,” he added. As rates go up, affordability will become an issue for some buyers. Already, a decline in the number of mortgage applications suggests that some Americans have been shut out of the market, as a record supply of homes for sale has pushed prices up.