Purchase mortgages cross dreaded 5% threshold

The 5% threshold has been crossed, and given all the headwinds in the U.S. economy, it doesn’t appear that mortgage rates will be dropping below that mark anytime soon.

Purchase mortgages this week averaged 5%, up 28 basis points from 4.72% a week ago, according to the latest Freddie Mac PMMS. A year ago at this time, rates were at 3.13%. The GSE’s index accounts for just purchase mortgages reported by lenders over the past three days.

“This week mortgage rates averaged 5% for the first time in over a decade,” said Sam Khater, Freddie Mac’s chief economist. “As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation.”

The gulf between the average 30-year-fixed rate conforming mortgage and a 30-year jumbo, a product for wealthier borrowers, widened to 42 basis points, according to Black Knight‘s Optimal Blue OBMMI pricing engine, which considers refinancings and additional data from the Mortgage Bankers Association (MBA). Jumbos on Wednesday were locked at 4.69%.

Rates on conforming 30-year fixed-rate mortgages overall averaged 5.12% on Wednesday, according to Black Knight, with LOs telling HousingWire that clients had locked loans in the low 5% range this week.

On Thursday, New York Fed Chair John Williams said that a 50 basis point interest rate hike in May is a “reasonable option” to help control inflation.

HousingWire recently spoke with David Peskin, president of Reverse Mortgage Funding, who said entering the reverse mortgage business could allow originators to break into a growing market with significant demand that is largely untapped.

The central bank has signaled that it will raise rates another six times in 2022, and likely several more times in 2023, which will likely trigger a corresponding rise in mortgage rates. The Fed since early March has been letting its purchases of mortgage-backed securities run off. There is consensus from the Fed governors to stop replacing up to $35 billion of maturing MBS assets each month.

The Fed’s agency MBS holdings currently total about $2.7 trillion and, so far, it is continuing to replace maturing assets in that portfolio as they run off the books. 

Cutting another $35 billion from the Fed’s monthly MBS purchase tally will create a lot of new supply in the market, which will likely further increase pressure on interest rates, which could be amplified by other potential world events, Lawrence Yun, chief economist for the National Association of Realtors, recently told HousingWire.

“Directionally, it means higher mortgage rates,” Yun said. “… If China reduces its holdings of U.S. government bonds or GSE-related [government-sponsored enterprise] securities, then interest rates will rise even further. 

“The soaring federal deficit requires even more buyers of bonds, and some government bond sales may make it more difficult to issue MBS securities, unless with higher interest rates.” 

The 15-year fixed-rate purchase mortgage averaged 4.17% with an average of 0.9 points, up from 3.91% the week prior, according to Freddie Mac. The 15-year fixed-rate mortgage averaged 2.35% last year. The 5-year ARM averaged 3.69% with buyers on average paying for 0.3 points, up from last week’s average of 3.56%. The product averaged 2.80% a year ago.

Mortgage applications dropped 1.3% from the past week, and refi applications were down 62% from a year ago. Less than 5% of homeowners can save on a refinancing these days.



And despite incredible gains in equity owing to soaring home prices, inflation — which touched 8.5% in March — has sapped strength from the renovation market. The lumber futures fell to $870 per 1,000 board feet in Chicago on Monday, a 30% decline from the start of March, according to Bloomberg.