Mortgage rates strongly increased above 3% in the week ending November 18, according to the latest Freddie Mac PMMS mortgage report.
The 30-year fixed-rate mortgage hit 3.10%, up 12 basis points from 2.98% the week prior. A year ago at this time, the average 30-year fixed-rate loan averaged just 2.72%.
Sam Khater, Freddie Mac’s chief economist, said the combination of rising inflation and consumer spending is driving mortgage rates higher. “Shoppers looking to buy a home are fueling strong demand while ongoing inventory shortages are not improving in the presence of higher home,” he said in a statement.
The survey focuses on conventional, conforming, and fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.
Economists at Freddie Mac said the 15-year fixed-rate mortgage averaged 2.39% last week, up from 2.27% the week prior. It’s also higher than it was a year ago, at 2.28%. Meanwhile, the five-year ARM dropped slightly to 2.49%, down three basis point from last week. A year ago, 5-year ARMs averaged 2.85%.
Mortgage rates tend to move in concert with the 10-year Treasury yield, which reached 2% on Nov. 15, up from 1.89% a week before.
The increase in rates is impacting mainly refi activity. Refinance mortgage loan applications dipped 31% year-to-year on the week ending Nov. 12, according to the Mortgage Bankers Association (MBA). By contrast, purchase applications declined 6% in the same period.
Joel Kan, associate vice president of economic and industry forecasting at the MBA, said refi applications decreased for the seventh time in eight weeks, as mortgage rates increased following two weeks of declines. The MBA projects that by the end of 2022, mortgage rates will approach 4%. The trade organization believes the heavy refi activity that drove the market in 2020 and much of 2021 will give way to purchase business over the next two years.