Mortgage Rates Now Back Above 7%

Mortgage rates have been hit hard on two fronts over the past month.  The first front is the obvious one: the bond market has moved in a way that forces rates to go higher.  To be fair, it's almost always the bond market that forces rates to go wherever they're going. 

A vast majority of the day-to-day movement in rates is a simple function of the trading levels in specific bonds.  This has been and will continue to be the case, possibly forever.  February (and now early March) economic data caused traders to worry about higher inflation and resilient economic growth.  This makes traders want to sell bonds more than buy them, and that results in higher interest rates.

But bonds aren't always everything when it comes to rate movement.  The "everything else" category changes in composition depending on the landscape.  For instance, during the 2020-2021 refi booms, rates were often limited by mortgage lenders' capacity to handle new business.  The bond market actually allowed for much lower rates at times, but lenders simply couldn't handle the volume.

There's a different problem in the "everything else" category right now.  The regulator overseeing Fannie and Freddie recently changed some of the upfront fees required for all conforming mortgages (conforming = guaranteed by Fannie and Freddie).  Depending on a borrower's credit score and the amount of a home's value they wish to borrow, their rate could instantly rise by 0.125% simply because a lender implemented the new fee requirements.

Without the impact of those fees, rates could still be in the high 6% range, or close to it.  As it stands, the average lender is now back up into the low 7's for a well-qualified 30yr fixed scenario.  These aren't the highest levels we've seen during this cycle, but they are the highest in more than 4 months (and not too far away from the long-term highs just under 7.4%).

(The following paragraph was edited one day after initial publication to better describe the issues with Freddie's new survey methodology).

Incidentally, Freddie Mac's rate survey came out today and it showed 30yr fixed rates at 6.65.  Understand that Freddie's rate is now a weekly average centered on Monday and rates have risen since then.  Additionally, while the survey no longer conveys upfront points, they are still part of the underlying rate quotes.  Last but not least, the rates captured by the survey are frequently adjusted higher by the time a loan is ultimately closed due to additional upfront fees that weren't accurately accounted for at the time of initial data entry.  If we were to adjust for the market movement that's happened since Monday, the upfront costs, and the fees, Freddie's number would likely be right in line with 7.1%.