Mortgage rates jumped higher in response to hints that the Federal Reserve may soon alter its approach to the economy in light of high inflation.

The 30-year fixed-rate mortgage averaged 3% for the week ending May 20, up six basis points from the previous week, Freddie Mac
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  reported Thursday. It’s the first time in roughly a month the benchmark mortgage rate has touched the 3% mark, but it remains below where it stood at the end of March when it reached the highest level since June of last year.

The 15-year fixed-rate mortgage increased three basis points to an average of 2.29%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.59%, the same as a week ago.

The mortgage market hiked rates as investors responded to the first indications from the Federal Reserve that the central bank may begin taking steps toward scaling back the policies put in place to help the economy through the coronavirus pandemic.

The Fed released the minutes from its April meeting, which noted that multiple officials “suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”


‘Mortgage rates are still very low by historical standards, but their path forward is quite uncertain.’


— Matthew Speakman, an economist with Zillow

The news sent the yield on the 10-year Treasury note higher — mortgage rates roughly track the direction of long-term bond yields, including the 10-year Treasury
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“Mortgage rates are still very low by historical standards, but their path forward is quite uncertain,” said Matthew Speakman, an economist with Zillow
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(They 30-year rate exceeded 18% as the Fed attempted to get a handle on runaway inflation in the early 1980s.)

“Markets will surely be keeping a close eye on any signals that the Fed may be closer to tightening policy, which in previous recessions has sparked a strong increase in rates.”

Among the assets that the Fed has been purchasing to stimulate the economy are mortgage-backed securities. By purchasing these securities, the Fed pumped liquidity into the mortgage market that allowed lenders to drop rates to attract applications. Without that source of liquidity, though, lenders would need to increase rates.

Until the Fed’s exact policy change is certain, mortgage rates could become much more volatile. But even if rates do move higher, home buyers don’t necessarily need to worry about affordability constraints just yet.

For starters, an average of 3% on the 30-year fixed-rate mortgage is extremely low by historical standards. As the economy begins to open up more and more from the restrictions put in place to stem the tide of the pandemic, that should give another breath of life into the real-estate market.

“Business activity and real estate traffic are ready to embrace the new post-pandemic normal,” said George Ratiu, senior economist at Realtor.com. “This will boost the number of homes for sale, offering buyers more choice and slowing the steep price growth we’ve seen over the past 10 months.”



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