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Mortgage rates are climbing back toward 7 percent and could breach last year’s highs after Federal Reserve Chairman Jerome Powell warned lawmakers this week that the Fed may have to hike rates faster and take them higher to combat inflation.
After Powell delivered the Fed’s semiannual Monetary Policy Report to Congress and wrapped up two days of hearings Wednesday, futures markets were pricing in a 78 percent chance Fed policymakers will accelerate their rate-hike campaign and bump the federal funds rate up by 50 basis points at their next meeting, which concludes on March 22.
Federal Reserve policymakers approved a modest, 25 basis-point increase in the federal funds rate on Feb. 1, bringing the short-term benchmark rate to a target range of 4.5 to 4.75 percent.
Futures markets tracked by the CME FedWatch Tool predict that the federal funds rate will be at 5.5 to 5.75 percent or higher by the end of the year — a full percentage point higher than today.
“Although inflation has been moderating in recent months, the process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy,” Powell told lawmakers. “As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”
Daily loan lock data tracked by Optimal Blue shows rates on 30-year fixed-rate conforming mortgages hit 6.78 percent Tuesday, up nearly a full percentage point from a 2023 low of 5.98 percent registered Feb. 2. Last year, Optimal Blue data showed rates on 30-year fixed-rate loans peaking at 7.16 percent on Oct. 24.
Another rate index published by Mortgage News Daily shows rates on 30-year fixed-rate loans breached the 7 percent threshold on March 2.
Despite the recent upswing in rates, homebuyer demand for purchase mortgages picked up by a seasonally adjusted 7 percent last week from the week before, according to a weekly lender survey by the Mortgage Bankers Association (MBA).
That’s the first upswing in mortgage demand following three weeks of declines. But MBA Deputy Chief Economist Joel Kan cautioned that the increase was relative.
“Even with higher rates, there was an uptick in applications last week, but this was in comparison to two weeks of declines to very low levels, including a holiday week,” Kan said in a statement. “Comparing the application indices from a year ago, purchase applications were still down 42 percent, and refinance activity was down 76 percent. Many borrowers are waiting on the sidelines for rates to come back down.”
The MBA Weekly Mortgage Applications Survey found that with higher rates, adjustable-rate mortgage (ARM) loan applications accounted for 8.6 percent of total applications, up from 8.1 percent the week before.
Requests for FHA-backed loans accounted for 12.8 percent of all applications, up from 12 percent the week before, and VA loan applications accounted for a 12 percent share, up from 11.6 percent the week before.
For the week ending March 3, the MBA reported average rates for the following types of loans:
- For 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less), rates averaged 6.79 percent, up from 6.71 percent the week before. With points increasing to 0.80 from 0.77 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200) averaged 6.49 percent, up from 6.44 percent the week before. With points increasing to 0.59 from 0.49 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 30-year fixed-rate FHA mortgages, rates averaged 6.56 percent, up from 6.45 percent the week before. With points increasing to 1.21 from 1.19 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- Rates for 15-year fixed-rate mortgages averaged 6.25 percent, up from 6.13 percent the week before. With points increasing to 1.01 from 0.93 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 5/1 ARMs, rates averaged 5.75 percent, up from 5.73 percent the week before. With points increasing to 0.95 from 0.86 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
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