Freddie Mac mortgage rates back above 5.5%

Mortgage rates rose this week, according to the Freddie Mac benchmark survey. The average rate for a 30-year fixed-rate mortgage rose to 5.55% for the week ending August 25.

Throughout 2022, borrowers faced abnormally high mortgage rates compared to 2021.

At the onset of the COVID-19 pandemic, rates fell and remained below 3% for many months, allowing millions of borrowers to enjoy a once-in-a-lifetime property boom.

But since the first week of January, Freddie Mac rates have steadily increased. The 30-year rate peaked at 5.81% in mid-June. For the past two months, rates have fluctuated between 5% and 5.5%. which is still significantly higher than the average mortgage rates of the last decade. As a result, housing affordability continues to weigh heavily on the market.

“Home sales continue to decline, prices are moderating and consumer confidence is low,” Freddie Mac chief economist Sam Khater said in a press release.

Other loan categories are mixed this week. The 15 year fixed rate mortgage has increased and is now at 4.85% on average and the 5/1 variable rate mortgage has decreased and is now at 4.36%.

What’s next for mortgage rates?

With signs inflation may have peaked over the summer, many pundits are awaiting Friday’s expected comments from Federal Reserve Chairman Jerome Powell for news on changes to the fed funds rate. .

The Fed raised the fed funds rate by a total of 2.50% in the first seven months of the year in a bid to rein in inflation, which hit a 40-year high of 9.1% in June .

The federal funds rate influences investment instruments like treasury bills, which in turn impact the rates offered by mortgage lenders. Still, a combination of economic indicators helped push rates higher this week, including inflation — both here and abroad — and signs of slowing economic growth, said Robert Heck, vice-president. president of mortgages on the Morty online market.

Heck expects rates to remain volatile over the next few weeks, likely hovering between the “4% high” and “5% low”.

Going forward, however, rates may begin to rise again rapidly.

When COVID first hit, the Fed bought mortgage-backed securities, pools of mortgages bundled together and sold to investors, to keep the economy from stagnating. The purchase of these assets, along with the lower federal funds rate, helped push down mortgage rates. As the Fed begins to accelerate the sale of these assets in September, experts predict the opposite effect will occur.

“Continued Fed rate hikes, combined with balance sheet shrinkage through the purchase of mortgage-backed securities, should keep upward pressure on mortgage rates,” said George Ratiu, head of economic research at Realtor.com.

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