Mortgage rates rise due to inflationary concerns

The 30-year mortgage rate climbed for the ninth time in 10 weeks, as inflation and geopolitical concerns remain top of mind with investors.

The average climbed 3 basis points to 5.3% from 5.27% seven days earlier for the weekly period ending May 12, according to Freddie Mac’s Primary Mortgage Market Survey. During the same week one year ago, it came in at 2.94% and has risen by more than a full percentage point in the past two months.

After the Federal Open Market Committee meeting last week, where the central bank announced a 50-basis-point hike of the federal funds rate, investors reacted positively, according to Paul Thomas, vice president of capital markets at Zillow. That initially helped drive Treasury yields — and mortgage rates — down, but markets reversed course over the following days, leading to the weekly uptick.

“Inflation, supply chain challenges and labor issues continue to weigh on the minds of market watchers, and may force the Federal Reserve to take more hawkish actions to tame inflation than what is currently being signaled,” Thomas said in a research blog post. 

While the U.S. Bureau of Labor Statistics reported the pace of inflation slowing in April on an annual basis compared to March numbers, it still exceeded economists’ expectations, likely doing little for the Fed or the markets to veer from the current course.  

“Investors will be focused on price indicators released this week to ascertain if inflation is  leveling off and what that might mean for future interest rates,” Thomas said, adding that supply-chain challenges due to the Russia-Ukraine war and China’s coronavirus lockdown would also be a factor.

But the policy moves and world events have also brought with them worries about a recession, he noted, which would leave their mark on mortgage rates. 

“Markets have been extremely volatile in the past few weeks, and this is likely to continue in the short term.”

Despite the increasing-rate environment, consumers have shown resilience, according to Freddie Mac Chief Economist Sam Khater. Higher rates have caused monthly payments to increase by one-third compared to the same period last year, but many potential homebuyers are still in the market, he said. Current pressures, though, are likely becoming too large an obstacle to not cause an impact in the near future. 

“In the months ahead, we expect monetary policy and inflation to discourage many consumers, weakening purchase demand and decelerating home price growth,” he said in a press release.

Although the 30-year average increased, the 15-year mortgage rate declined by 4 basis points to 4.48% from 4.52% week over week. A year ago, the 15-year average for the week clocked in at 2.26%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage increased, climbing to 3.98% from 3.96% the previous week. One year ago, the 5-year ARM averaged 2.59%.