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Latest mortgage news: After flirting with 6%, rates retreat

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In a reversal from the rapid rise in recent weeks, the average rate on 30-year mortgages dipped to 5.85 percent this week from 5.91 last week, according to Bankrate’s national survey of large lenders.

The Federal Reserve raised rates three-quarters of a percentage point this month, a move that portended rising mortgage rates. The central bank is ramping up efforts to fight inflation, which has remained high after a bout of pandemic stimulus. In May, annual price increases clocked in at 8.6 percent.

“Recession may be all everyone is talking about, but without improvement on the inflation front, the risk in mortgage rates remains very much to the upside,” says Greg McBride, chief financial analyst for Bankrate.

Four decades ago, when the Fed again grappled with high inflation, mortgage rates rose swiftly, averaging higher than 16 percent by 1981. The central bank directly moves interest rates on some mortgage products, namely adjustable-rate mortgages and home equity loans. Fed policy has fewer ramifications for fixed mortgage rates, which more closely follow the 10-year Treasury yield. The 10-year Treasury does react to inflation, however, and also Fed sentiment, with the benchmark yield recently treading upward to a year high. In the days before the Fed meeting, mortgage rates briefly reached 6 percent.

For borrowers, the spike marks an end to the historically low rates that characterized the period following the global financial crash of 2008 and 2009.

A year ago, the benchmark 30-year fixed-rate mortgage was 3.16 percent. Four weeks ago, the rate was 5.27 percent. The 30-year fixed-rate average for this week is 2.85 percentage points higher than the 52-week low of 3 percent.

The 30-year fixed mortgages in this week’s survey had an average total of 0.41 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.92 percent.

Where mortgage rates are headed

With inflation yet to recede, the expectation for mortgages rates remains uncertain. For now, borrowers are continuing to feel the pinch, and some might be priced out altogether.

“Usually with high inflation, you’d think that interest rates would continue to climb higher, but with consumer expectations in the dumps and paychecks failing to keep up with inflation, there is simply less money to spend,” says James Sahnger of C2 Financial Corp.

With inflation running hot, the Fed has indicated it intends to raise rates several times in the coming months. What’s more, the Fed is selling off some of the securities it bought to stave off the coronavirus recession.

“We’re well aware that mortgage rates have moved up a lot, and you’re seeing a changing housing market,” Fed Chairman Jerome Powell told reporters this month. “We’re watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. We’re watching that quite carefully.”

As rates rise, the refinancing boom of 2020 and 2021 is firmly in the rearview. Rate-and-term refinance activity dropped by 80 percent in the first quarter of 2022, according to mortgage data firm Black Knight. The name of the game now for homeowners sitting on mounds of equity: cash-out refinances, which accounted for 75 percent of refinances in the first quarter.

Home purchases sluggish as rates rise

In a disconnect, home prices have been soaring even as mortgage rates rise. The median price for existing houses sold in May was $407,600, up 15 percent from May 2021, the National Association of Realtors reports, while sales have fallen for the fourth month in a row.

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past months,” said Joel Kan, associate vice president of economy and industry forecasting at the Mortgage Bankers Association, in a recent statement. “These worsening affordability challenges have been particularly hard on first-time buyers.”

Economists had expected rates to rise by the end of 2022, but the surge in rates in recent months has many forecasters wondering what comes next. As mortgage rates climb toward 6 percent, competition remains intense among those who can afford to buy. That pool is steadily shrinking, with mortgage applications recently falling to a 22-year low, according to the Mortgage Bankers Association.

Methodology

The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent. “Lenders surveyed each week are a mix of lender types — thrifts, credit unions, commercial banks and mortgage lending companies — is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.

Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
Edited by
Mortgage editor