Yahoo Finance Mortgage rates march higher on inflation fears
Mortgage rates ticked back up this week on renewed inflation concerns after the U.S. banned oil imports from Russia.
The rate on the average 30-year fixed home mortgage increased to 3.85%, up from 3.76% a week ago, according to Freddie Mac. That followed two weeks of declines after the Russian invasion into Ukraine prompted jittery investors to pour into the 10-year Treasury, pushing its yield — which mortgage rates follow — lower.
That yield and rates are back up on expectations that high fuel prices will boost inflation even more after recording another high in February, creating difficulties for first-time buyers and limiting refinance incentives for homeowners.
“Over the long-term, we expect rates to continue to rise as inflation broadens and shortages increasingly impact many segments of the economy,” said Sam Khater, Freddie Mac’s Chief Economist. “However, uncertainty about the war in Ukraine is driving rate volatility that likely will continue in the short-term.”
Homeowners rush to refinance
Before rates resumed their march upward, homeowners jumped on the abrupt two-week decline in rates. The volume of refinance applications increased 9% last week from the previous one, according to the latest Mortgage Bankers Association (MBA) survey.
“The drop in rates definitely allowed a few more folks who were looking to refinance last month but didn't due to rising rates a chance to do so,” Keith Gumbinger, vice president of HSH.com, told Yahoo Money. “And some folks who were looking to do a cash-out refi may have jumped in to get a deal done before rates move even higher.”
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Cash-out refinances registered a 9.2% increase in lock activity in January, according to mortgage technology and data provider Black Knight.
With an estimated $10 trillion of tappable equity in the market, the strong growth in cash-out activity is likely to continue even as applications for traditional refinances plummet. This is especially true since cash-outs are generally “less interest rate sensitive” compared to rate and term refinances, said Gumbinger.
“Still, it's a good idea for homeowners considering refinancing in such a climate to be prepared to take advantage of such a dip,” Gumbinger said.
Homebuyer sentiment improves
Homebuyer sentiment improved in February, compared with the previous month, but remains near record lows as first-time buyers continue to face headwinds.
“High home prices continue to be the most commonly cited reason by consumers for their belief that it’s a good time to sell (and a bad time to buy) a home,” Fannie Mae Chief Economist Doug Duncan said. “This suggests that homeowners and higher-income groups may recognize the importance of getting ahead of the rising rate environment.”
Some already have. Mortgage application volume for purchases increased 9% last week from the prior week, according to the MBA.
"Rates are still around 4% which are close to historically low levels – that’s still an acceptable rate for borrowers depending on what they are looking for,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, told Yahoo Money. "Any break in rates is definitely enough incentive for borrowers to act on,” said Kan.
Still, at today’s rate, the buyer of a median-priced home of $392,000 is facing a mortgage payment more than $290 per month compared with a year ago. Add in a 7.9% increase in consumer prices and buyers are feeling pinched from all sides.
“There's going to be a little bit more uncertainty and a bit more risk given that inflation is still exceeding the pace of income growth or wage growth," Kan said. "We are now at a point where cost of living and food prices are going to start impacting not just the way people can spend but how they are thinking about spending.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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