Although mortgage rates now stand higher than they did just a couple months ago, more people are applying for loans to buy homes.
The 30-year fixed-rate mortgage averaged 3.75% during the week ending Nov. 14, up six basis points from the previous week, Freddie Mac FMCC, -1.55% reported Thursday. Last week, mortgage rates had fallen after three straight weeks of increases.
Still, mortgage rates remain much lower than where they stood a year ago. During this same week last year, the 30-year fixed-rate mortgage averaged 4.94%.
The 15-year fixed-rate mortgage rose seven basis points to an average of 3.2%, according to Freddie Mac. The 5/1 adjustable-rate mortgage averaged 3.44%, ticking up five basis points from a week ago.
Mortgage rates generally track the direction of the 10-year Treasury note TMUBMUSD10Y, -3.79%. Though the 10-year Treasury yield has fallen over the past few days, it remains at its highest level since September thanks to a brightening outlook for the economy.
“The modest uptick in mortgage rates over the last two months reflects declining recession fears and a more sanguine outlook for the global economy,” Sam Khater, Freddie Mac’s chief economist, wrote in the report. “Due to the improved economic outlook, purchase mortgage applications rose 15% over the same week a year ago, the second highest weekly increase in the last two years.”
Despite the fact that mortgage rates have risen in four of the last five weeks — which makes buying a home a relatively more expensive proposition — interest in buying a home does appear to be increasing.
The most recent mortgage application data from the Mortgage Bankers Association showed a 9.8% increase week-over-week in mortgage application volume. While that uptick was mostly led by refinances, it did reflect a 5% increase in applications for home purchase loans.
But as mortgage rates remain under 4%, a new risk for home buyers could emerge. So many homeowners today have a mortgage with an interest rate that begins with a “3.”
As a result, these people may not feel as inclined to sell and buy a newer, larger home in the years to come if mortgage rates increase markedly, according to Odeta Kushi, deputy chief economist for title insurance firm First American Financial Corporation FAF, +0.49%.
For buyers, that so-called “lock-in effect” could significantly decrease the number of homes for sale in the months and even years to come, making it harder and more expensive to find a home to purchase.