Mortgage rates rise on continuing economic turmoil

Mortgage rates reversed this week, rising by the same four basis points it lost seven days prior, Freddie Mac said.

That was a much smaller increase than seen in the 10-year Treasury yield, which rose 20 basis points between closing time on May 11 at 3.4% and opening on Thursday morning when it was 3.6%.

The Mortgage Bankers Association's Weekly Application Survey released yesterday noted an abnormally large spread of 310 basis points between its own rate gauge as of May 12 for the conforming 30-year fixed rate mortgage and the 10-year Treasury. Spreads are normally between 150 and 200 basis points.

Freddie Mac's Primary Mortgage Market Survey put the average for the 30-year FRM at 6.39% on May 18, from 6.35% one week earlier and 5.25% for the same period in 2022. That is a 279 basis point spread between the 30-year FRM and the 10-year Treasury.

The PMMS adopted a new methodology in November that now gathers data from applications submitted to its Loan Product Advisor automated underwriting system.

Meanwhile the 15-year FRM was unchanged from the prior week at 5.75%; one year ago it was at 4.43%.

"Economic crosscurrents have kept rates within a ten-basis point range over the last several weeks," Sam Khater, Freddie Mac's chief economist, said in a press release.

He noted that home prices have started to "modestly rise" over the last few months. "This indicates that while affordability remains a hurdle, homebuyers are getting used to current rates and continue to pursue homeownership," Khater said.

Zillow's rate tracker as of Thursday morning averaged 6.37% for the 30-year FRM, up 7 basis points from the prior day and 10 basis points from one week ago.

"Mortgage rates moved slightly higher this week as a number of Federal Reserve Bank officials reiterated the view that inflation is still too high," according to a Wednesday afternoon statement from Orphe Divounguy, senior macroeconomist for Zillow Home Loans.

The latest data around jobs and wage growth, along with inflation via last week's release of the Consumer Price Index, plus those statements from various Fed presidents, provided signs that the Federal Open Market Committee might be reluctant to make a pause in short-term rate hikes as many observers expected after the most recent meeting.

"It's clear that the Fed will remain prepared to further tighten policy until it sees more concrete evidence that inflation is waning," Divounguy said. "And until then, the yield on the U.S. 10-year Treasury will remain high, and mortgage rates — which tend to follow the 10-year — will also stay elevated."

The uncertainty around the debt ceiling negotiations is also providing upward pressure on bond yields and interest rate, Divounguy said. Zillow recently performed an analysis that claimed if a debt default takes place, the 30-year FRM could rise as high as 8.4%.