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US long-term mortgage rates have hit a six-month high

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Although inflation doesn't have a direct effect on rates, they tend to move in tandem. As inflation rises mortgage rates tend to follow. Adobe Stock

After a brief retreat last week, mortgage rates resumed their ascent.

According to the latest data Freddie Mac released Thursday, the 30-year fixed-rate average climbed to 3.05% percent with an average 0.7 point. (Points are fees paid to a lender equal to 1 percent of the loan amount. They are in addition to the interest rate.) It was 2.99 percent a week ago and 2.81 percent a year ago. The 30-year fixed-rate hasn’t been this high since April.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The 15-year fixed-rate average jumped to 2.3 percent with an average 0.7 point. It was 2.23 percent a week ago and 2.35 percent a year ago. The five-year adjustable-rate average rose to 2.55 percent with an average 0.2 point. It was 2.52 percent a week ago and 2.9v a year ago.

“Mortgage rates steadily increased this week, ending the week moderately higher,” Paul Thomas, vice president of capital markets at Zillow, wrote in an e-mail. “The September jobs report, released last Friday, was generally viewed as ‘meeting the bar’ for the Federal Reserve to begin tapering asset purchases. Minutes from the September Federal Open Market Committee (FOMC) continue to point toward tapering starting at the end of the year, in line with current market expectations, which may jolt rates higher entering the new year.”

Minutes from the Federal Reserve’s September meeting released this week and recent comments by Fed officials seem to indicate the central bank will begin reducing, or tapering, its bond-buying program soon. Although some observers wondered whether this month’s disappointing employment report would cause a delay, the Fed appears to be signaling that it is moving forward with tapering, possibly as early as next month.

James Bullard, St. Louis Federal Reserve president, told CNBC that he supports starting the taper in November. Raphael Bostic, Atlanta Federal Reserve president, told the Financial Times he would “be comfortable starting in November.”

For the past 18 months, the Fed has been buying $120 billion each month in Treasurys and mortgage-backed securities. The central bank’s ongoing intervention in the market has kept mortgage rates low.

The last time the Fed tapered its asset purchases, following the Great Recession, mortgage rates shot sharply higher. Even though Fed officials seem to be trying this time to avoid another “taper tantrum” by giving markets ample notice of their intentions, most observers expect rates to move higher.

Besides the Fed’s moves, inflation is putting upward pressure on mortgage rates. Wednesday’s report from the Labor Department showed prices are continuing to rise. Although inflation doesn’t have a direct effect on rates, they tend to move in tandem. As inflation rises mortgage rates tend to follow.

“Mortgage rates have gone up in four of the past five weeks,” said Holden Lewis, home and mortgage specialist at NerdWallet. “Yes, we found out Friday that job growth was disappointing in September. But inflation is elevated, and the Federal Reserve is fixing to tighten monetary policy, and that combination is enough to push mortgage rates higher.”

But not everyone is convinced rates are headed higher right away. Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed predict rates will stay about the same in the coming week.

“With a couple of weeks between the inflation numbers and the next Federal Reserve meeting, bond yields and mortgage rates will take a breather,” said Greg McBride, chief financial analyst at Bankrate.com.

Meanwhile, mortgage applications were flat last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — was 0.2 percent higher than a week earlier. The purchase index increased 2 percent, while the refinance index decreased 1 percent. The refinance share of mortgage activity accounted for 63.9v of applications.

“Rising mortgage rates and steep home-price appreciation continue to weigh on overall affordability, but interest in buying a home remains strong in most of the country,” said Bob Broeksmit, CMB, president and CEO of the Mortgage Bankers Association. “The 30-year fixed-mortgage rate has risen 15 basis points over the past month, causing an 11 percent decline in refinances during this time. MBA expects mortgage rates to be around 3.1 percent at the end of the year — up from 2.8 percent in December 2020.”

The MBA also released its mortgage credit availability index that showed credit availability increased in September. The MCAI rose 1.5 percent to 125.6 last month. An increase in the MCAI indicates lending standards are loosening, while a decrease signals they are tightening.

“Mortgage credit availability grew for the third straight month in September, reaching its highest level since May 2021,” said Joel Kan, an MBA economist. “Last month’s expansion was driven by a 4.5 percent increase in the conventional index, while the government index slightly decreased. Even with increases in seven out of nine months thus far in 2021, total credit availability is still around 30 percent less than it was in February 2020 before the pandemic.”

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