After several weeks of volatility, mortgage rates settled in ahead of next week’s Federal Reserve meeting.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average ticked up to 5.54% with an average 0.8 point. (A point is a fee paid to a lender equal to 1% of the loan amount. It is in addition to the interest rate.) It was 5.51% a week ago and 2.78% a year ago.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The 15-year fixed-rate average grew to 4.75% with an average 0.8 point. It was 4.67% a week ago and 2.12% a year ago. The five-year adjustable-rate average fell to 4.31% with an average 0.3 point. It was 4.35% a week ago and 2.49% a year ago.

“The Freddie Mac fixed rate for a 30-year loan rose again this week, as capital markets flashed brighter signs of an impending recession,” said George Ratiu, manager of economic research at Realtor.com. “The spread between the 2-year and 10-year Treasuries moved even deeper into negative territory this week. This yield-curve inversion points toward growing investor concern that the Federal Reserve’s rate setting is not likely to tamp down fast-running inflation.”

Mortgage rates are caught in a tug of war – pulled one way by inflation fears, yanked the other by recession concerns. The reason rates have been seesawing is because investors can’t figure out which one worries them the most.

The Federal Reserve is trying to tame inflation while not setting off a recession. The Fed is expected to raise its benchmark rate again when it meets next week. At its last meeting, the central bank raised the federal funds rate by 75 basis points, its third rate hike this year. (A basis point is 0.01 percentage point.) Other central banks are taking similar action. The European Central Bank raised interest rates by 50 basis points on Thursday, its first rate hike in 11 years.

“All eyes are on next week’s meeting of the [Federal Reserve], with markets widely anticipating another 75 basis point hike,” said George Ratiu, manager of economic research at Realtor.com. “The big question is whether 75 basis points will be enough, or if the Fed should push for a 100 basis point increase.”

The Federal Reserve doesn’t set mortgage rates, but its actions influence them.

The Fed meeting will come on the heels of a rough week of housing data. The National Association of Home Builders released its survey of builders’ confidence, which found builders are growing increasingly pessimistic. The second-largest drop in survey history sent the index down to its lowest level since early in the pandemic. Housing starts fell to a nine-month low in June, while existing-home sales dropped for the fifth month in a row last month.

Builders say supply chain issues, excessive regulations and labor shortages are raising construction costs. Higher mortgage rates and rising inflation are causing buyers to pull back. It is all adding up to a weaker housing market.

Jerry Konter, NAHB chairman, testifying before the Senate Finance Committee on Wednesday, said “a year ago, nearly one-quarter of new homes were priced under $300,000. Today, it’s 10%.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts mixed on where rates are headed in the coming week. Fifty-seven percent say they will go up, 29% say they will go down and 14% say they will stay about the same.

James Sahnger, mortgage planner with C2 Financial, predicts rates will rise.

“Rates have seen an increase in the days preceding other Fed meetings this year, and I see no reason for that trend to be snapped now,” Sahnger said.

Greg McBride, chief financial analyst at Bankrate.com, expects rates will fall.

“The Fed meeting is more likely to bring about lower mortgage rates than higher mortgage rates as long-term rates respond to growing recession worries,” McBride said.

Meanwhile, mortgage demand sank to its lowest level in 22 years last week. The market composite index – a measure of total loan application volume – decreased 6.3% from a week earlier, according to Mortgage Bankers Association data.

The refinance index dropped 4% from the previous week and was 80% lower than a year ago. The purchase index fell 7%. The refinance share of mortgage activity accounted for 31.4% of applications.

“High inflation, rising economic uncertainty, and mortgage rates that are more than 2 percentage points higher than a year ago continue to hamper mortgage demand,” Bob Broeksmit, MBA’s president and chief executive, wrote in an email. “Applications for both refinances and home purchases fell last week and remain well below year-ago levels.”

(c) 2022, The Washington Post · Kathy Orton