Demand for mortgages jumped last week as interest rates retreated from recent highs, thanks to a flight to safety into bonds by investors seeking shelter from the economic uncertainty created by the war in Ukraine.
Mortgage rates have since rebounded as investors weigh the prospect that the economic fallout from Russia’s invasion of Ukraine could eventually lead to higher energy costs that fuel inflation.
According to a daily index of rate lock data compiled by Optimal Blue, rates on 30-year fixed-rate mortgages surged above 4 percent on Feb. 10 for the first time since December 2019, as hot inflation numbers and the prospect of Federal Reserve tightening spooked bond market investors who fund most mortgages.
But mortgage rates sagged after Russia’s Feb. 24 invasion of Ukraine prompted investors to sell off riskier stocks and buy government debt and mortgage-backed securities. Since bond prices and yields move inversely, the flight to safety brought mortgage rates down — but only temporarily.
The Optimal Blue Mortgage Market Indices show that after hitting a 2022 high of 4.19 percent on Feb. 25, rates for 30-year fixed-rate dipped below 4 percent on March 1. They’ve been trending upward since then, hitting 4.18 percent Tuesday, Optimal Blue’s rate lock data shows.
During the week ending March 4, demand for purchase loans by would-be homebuyers jumped by a seasonally adjusted 9 percent from the week before, according to the Mortgage Bankers Association’s Weekly Mortgage Application Survey. Compared to a year ago, however, demand for purchase loans was down 7 percent.
Requests to refinance were up 9 percent week over week, but down 50 percent from a year ago, when mortgage rates were closer to record lows set during the pandemic.
“Mortgage rates dropped for the first time in 12 weeks, as the war in Ukraine spurred an investor flight to quality, which pushed U.S. Treasury yields lower,” the MBA’s Joel Kan said of last week’s movements in rates. “Looking ahead, the potential for higher inflation amidst disruptions in oil and other commodity flows will likely lead to a period of volatility in rates as these effects work against each other.”
Kan characterized the increase in refinance applications as a “slight rebound,” with a larger gain in refinances of FHA-, VA- and USDA-backed loans.
“Purchase activity also increased, as prospective buyers acted on lower rates and the early start of the spring buying season,” Kan said. “The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth.”
The MBA reported average rates for the following types of loans last week:
- For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less) rates averaged 4.09 percent, down from 4.15 percent the week before. With points remaining unchanged at 0.44 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also decreased.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 3.79 percent, down from 3.88 percent the week before. With points decreasing to 0.39 from 0.40 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
- For 30-year fixed-rate FHA mortgages, rates averaged 4.12 percent, down from 4.15 percent the week before. With points decreasing to 0.73 from 0.74 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.
- Rates for 15-year fixed-rate mortgages, popular with homeowners who are refinancing, averaged 3.39 percent, down from 3.47 percent the week before. With points decreasing to 0.46 from 0.47 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
- For 5/1 adjustable-rate mortgages (ARMs), rates averaged 3.38 percent, down from 3.44 percent the week before. With points decreasing to 0.28 from 0.35 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.
All eyes will be on Federal Reserve policymakers next week, who will conclude their next two-day meeting on March 16.
The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows markets on Wednesday pricing in a 98 percent chance that the Fed will raise the federal funds rate by 25 basis points, but only a 1.7 percent chance of a 50-basis-point rate hike.