Mortgage rates hit new high since last July

According to National Mortgage News, the mortgage rate increases noticeably stifled recent borrower applications, but further growth should slacken right as the typical prime home buying season starts, said Sam Khater, Freddie Mac's Chief Economist.

"While activity remains high, it's currently on par with early March, prior to the pandemic," Khater said in a press release. "However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season."

The average for the 15-year FRM held at 2.34% from last week and remained far below the 2.795 from the year before. The five-year Treasury-indexed hybrid adjustable-rate mortgage dropped by 26 basis points to an average of 2.73% from 2.99% and fell from 3.18% year-over-year.

The improving economy, led by gradual impacts from vaccine distributions, will keep the upward pressure on interest rates. But there are other factors that will weigh on future rate movement, according to Zillow economist Matthew Speakman, who issued comments on Wednesday night.

"The pace of this upward momentum is far from certain – negative pandemic-related developments or surprisingly weak February jobs numbers are two factors that could keep mortgage rates in check or even nudge them back downward." Speakman said.

As winter storms move on, mortgage applications recover in their wake

As reported by HousingWire, Mortgage applications recovered slightly from last week, increasing 0.5% for the week ending Feb. 26, 2021 according to the latest report from the Mortgage Bankers Association.

Devastating winter storms in Texas led to a giant dip in applications the week of Feb. 8, but a week of weather returning to normal brought numbers closer to normal, too, according to Joel Kan, MBA's associate vice president of economic and industry forecasting.

"The overall share of refinances declined for the fourth consecutive week, and conventional refinance applications fell more than 2% to the lowest level in four months," Kan said. "Government refinance applications historically lag the more rate-sensitive movements of conventional applications, and that was true last week, as both FHA and VA refinancing volumes increased."

That is despite the fact that the 30-year fixed-rate experienced its largest single-week increase in almost a year, reaching 3.23%. The refinance share of mortgage activity decreased to 67.5% of total applications from 68.5% the previous week.

"The housing market is entering the busy spring buying season with strong demand," Kan said. "Purchase applications increased, with a rise in government applications – likely first-time buyers – pulling down the average loan size for the first time in six weeks."

The FHA share of total mortgage applications increased to 12.1% from 11.2% the week prior. The VA share of total mortgage applications decreased to 12.3% from 11.9% the week prior.

Economic reopening could cause temporary inflation

Federal Reserve Chairman Jerome Powell said Thursday that he expects some inflationary pressures in the time ahead but they likely won't be enough to spur the central bank to hike interest rates, according to CNBC.

"We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects," Powell said during a Wall Street Journal conference. "That could create some upward pressure on prices."

Powell instead reiterated past statements he has made on inflation in saying that he doesn't expect the move up in prices to be long-lasting or enough to change the Fed from its accommodative monetary policy. He did note that the move up in yields did catch his attention, as have improving economic conditions.

"There's good reason to think that the outlook is becoming more positive at the margins," Powell said.

Raising interest rates, he added, would require the economy to get back to full employment and inflation to hit a sustainable level above 2%. He doesn't expect either to happen this year.

Weekly mortgage rate update

Mortgage rates finally hit 3% this week. Since reaching a low point in January, mortgage rates have risen by more than 30 basis points, and the impact on purchase demand has been noticeable. 

While purchase activity remains high, it has cooled off over the last few weeks and is currently on par with early March, prior to the pandemic. However, the rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks, and we expect a strong spring sales season.

The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 3.02%, which is 0.05 points higher than last week, and down 0.27 points from this time last year.