WASHINGTON–Mortgage rates last week reached their highest level since November 2020, throwing at least some cool water on a red-hot home sales market as loan applications slowed.
The average rate on the 30-year fixed-rate mortgage rose to 2.81% in the week ended Feb. 18, the highest since the second week of November, according to Freddie Mac. As a result, mortgage applications fell 11.4% over the same week, according to the Mortgage Bankers Association.
Behind the increase in rates: improving COVID-19 vaccination rates in the U.S. and expectations of a large federal stimulus package in the coming weeks drove benchmark 10-year Treasury note yields, which are closely tied to mortgage rates and which saw their largest gains in months. Analysts noted demand in safe-haven assets such as government bonds weakens when investors feel optimistic about the economy.
“Higher rates are a signal of expectations of faster growth and a stronger job market ahead,” said Mike Fratantoni, the MBA’s chief economist. “This last week, rates have turned faster than many people had anticipated.”
Volume Declines
According to the MBA, first mortgage volume declined 11.6% while refinance activity was down 11.3% for the week ended Feb. 19.
Despite the increase, rates remain historically low.
The MBA reported mortgage lenders originated a record $3.6 trillion worth of mortgages during 2020, an increase of more than 50% from 2019. Refinances accounted for about 59% of that volume. With the 30-year rate near 2.81%, between 16.7 million and 18.1 million Americans could lower their monthly mortgage payments through a refinance, according to mortgage-data firm Black Knight Inc.