Rates for home loans rebounded, with the benchmark touching the second-highest level of 2018, after a brief respite for borrowers came to an end ahead of a key Federal Reserve decision.
The 30-year fixed-rate mortgage averaged 4.62% during the June 14 week, up from 4.54%, mortgage provider Freddie Mac said Thursday. The 15-year fixed-rate mortgage averaged 4.07%, up six basis points during the week. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.83%, up from 3.74%.
Those rates don’t include fees associated with obtaining mortgage loans.
Mortgage rates follow the path of the 10-year U.S. Treasury note
, which has been under pressure in recent months. As bond prices decline, yields rise, and so do mortgage rates typically. Investors are facing the risk of higher inflation and a rush of supply of government paper, both of which will erode the value of bonds.
While consumer demand for mortgages has remained higher than most analysts expected, given the jump in home prices and rates, mortgage lenders are increasingly feeling pinched.
The first-quarter Mortgage Lender Sentiment Survey from Freddie’s counterpart, Fannie Mae, found that a net 18% of lenders have a positive view of their profit margin — defined as actual growth over the past three months, as well as expected growth over the coming three. That reading was up a bit from a net 17% in Q1 and 16% in Q4 of 2017, but the lowest second-quarter reading in three years.
In past times of rising rates, lenders have compensated for losing business by broadening the pool of consumers to whom they would lend. Industry participants are watching to see if that happens in this cycle, as well.
But there’s one notable difference between the current lending environment and the last time the Fed was raising interest rates. As Freddie Chief Economist Sam Khater noted, a much smaller percentage of homeowners have adjustable-rate loans now compared to the last hiking cycle — 8% versus 31% in 2004-2006.
“The good news is that the impact on consumer budgets will be smaller,” Khater said. But, he added, “although wages are slowly growing, stronger gains would certainly go a long way in helping consumers offset these increases in prices and rates.”