Mortgage rates soar to highest level in months amid inflation concerns

‘The market’s outlook seems to suggest that the days of all-time low rates may be a thing of the past’

Rising mortgage rates could threaten home-buying activity as Americans are pushed out of the market.

Mortgage rates flew to the highest level since mid-November this week — a worrying sign for home buyers navigating a market defined by fast-rising home prices.

The 30-year fixed-rate mortgage averaged 2.81% for the week ending Feb. 18, up eight basis points from the week prior. The increase comes after three weeks where the 30-year mortgage rate stayed at 2.73%.

The 15-year fixed-rate mortgage rose two basis points to an average of 2.21%, while the 5-year Treasury-indexed hybrid adjustable-rate mortgage dipped two basis points to 2.77%.

“Economic spending has improved, due to the most recent stimulus, but supply chain shortages are causing downstream inflation, leading to higher mortgage rates,” Sam Khater, chief economist at Freddie Mac, said in the report.

The rise in rates was inevitable, Zillow economist Matthew Speakman said, because mortgage rates had not risen in tandem with Treasury yields. Historically, mortgage rates have tracked the direction of long-term bond yields, including the 10-year Treasury.

But throughout the pandemic that relationship has weakened somewhat — with mortgage rates falling to record lows well above the levels bond yields fell to. That gap has given mortgage lenders some latitude when it comes to adjusting interest rates. But this week, lenders followed suit.

In particular, this week’s strong retail sales report has sparked concerns about inflation.

“Investors also appear to be increasingly wary that more fiscal relief and accelerating economic growth through increased vaccination rates could translate to higher inflation — something that would reduce the value of bonds’ fixed-payments, and possibly lead the Federal Reserve to raise interest rates and place more upward pressure on yields and mortgage rates,” Speakman said.

“While that remains to be seen, as mortgage rates remain very low by historic standards, this shift in the market’s outlook seems to suggest that the days of all-time low rates may be a thing of the past,” he added.

As rates do rise, affordability is going to become an issue for some buyers. Already, a decline in the number of mortgage applications suggests that some Americans have been priced out of the market, as a record-low supply of homes for sale has pushed prices higher.