According to the latest weekly poll from the Mortgage Bankers Association (MBA), the average interest rate on the most popular U.S. house loan increased to more than 5% last week, the highest level since November 2018, and purchasers rushed to make purchases before costs jumped even more.
In the week ending April 8, the average contract rate on a 30-year fixed-rate mortgage jumped to 5.13 percent, up from 4.90 percent the week before. It has increased by more than 1.5 percentage points since the beginning of the year, as the Federal Reserve has moved to tighten financial conditions in order to chill economic demand in the face of rising inflation.
After raising the benchmark overnight lending rate for the first time in three years last month, Fed members now expect a succession of quick interest rate hikes until at least the end of this year in order to bring inflation down.
By the end of 2022, investors expect the Fed to raise its federal fund rate to 2.5 percent -2.75 percent, up from the current target range of 0.25 percent to 0.5 percent.
Officials are also likely to begin reducing the central bank’s $8.5 trillion portfolios of U.S. Treasuries and mortgage-backed securities as early as next month, a stockpile of assets that helped keep consumer borrowing costs – particularly for mortgages – low throughout the COVID-19 pandemic.
Treasury rates have risen as a result of these expectations for Fed tightening. The yield on the 10-year note, which serves as a benchmark for mortgage rates, has risen to its highest level since 2018, while the average 30-year mortgage contract rate has risen by 1.8 percentage points since the beginning of the year, marking the largest rise in home-financing costs in decades.