Mortgage Rates Inch Higher After Mixed Inflation Report

Rates on 30-year mortgages rose from 4.08 percent to 4.12 percent after the government released inflation and employment data.

The average rate for a 30-year fixed mortgage increased to 6.94% this week from 6.92% in the previous two. Most home loan products saw interest rates rise or remain about the same, including adjustable-rate and fixed-rate mortgages.

As of May 11, here are the current mortgage interest rates without discount points, unless otherwise stated:

30 year FHA loan: 5.96% plus 0.06 points (equivalent of 5.96% one week ago).

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While inflation is still high, the rate of its growth has slowed and it's expected to slow down over the rest of 2023. This is good news for mortgage rates in the long run.

  • Sam Khater Freddie Mac’s Chief Economist, in a statement on May 11,

Inflation has been the most important factor in forecasters' efforts to analyze economic data and determine future mortgage rates. The consumer price index report for April showed that inflation decelerated to a rate of 4.9% per year, down from 5% per annum in March. This is still above the Federal Reserve target of 2%.

After seasonal adjustment, the inflation rate in April was 0.4% higher month-over-month than in March, which was 0.1%. The annual inflation rate is still on track, but the monthly price rate has increased slightly.

Jiayi Zhu,'s economist, says that while the U.S. is improving, it is not at the rate the Federal Reserve would like. Inflation is still significantly higher than the Federal Reserve's target of 2%. The Fed has little reason to lower rates, even though the labor market data is promising amid concerns about a possible recession.

Rent continues to drive inflation, as it has for several months. Rental index prices rose 8.8% in April and have been steady for three months. Rental inflation will slow due to the robust apartment construction needed to satisfy high demand. However, overall inflation will still be boosted by this significant shelter cost.

The consumer price index has not yet reflected the price reductions in other rent cost indices. Zillow's Observed Rent Index indicates that rental inflation in April was 5.3%, after gradually falling from a peak of 16.9% back in February 2022.

Next month we will get more data from Fed, which shows their predictions for inflation and employment, as well as the federal funds rate. This data will give us a clearer picture of the future direction of mortgage rates, Xu says.

Indicator of The Week: A Credit Crunch on the Horizon

Lenders have tightened their balance sheets to reduce risks following high-profile bank failures, including the collapse Silicon Valley Bank. The tightening of credit may make it harder for borrowers, such as mortgage borrowers, to qualify for certain types of loans.

Credit crunch will not affect conditions for most borrowers, who require a conventional conforming loan or a Federal Housing Administration-backed loan. For homebuyers needing a jumbo mortgage - which is a type that's usually held on the balance sheet of a bank - qualifying could be more difficult.

Lenders may enforce stricter credit score requirements, as well as debt-to income ratios and loan-to value ratios (in other terms, the down payment amount) when dealing with jumbo mortgages. These non-conforming mortgages will also likely see an increase in borrowing costs. The rates for jumbo loans have already started to rise faster than the rates of conventional 30-year fixed rate mortgages.

Here are some tips on how to qualify for a home loan in a credit crunch.

Avoid jumbo loans by buying within the conforming lending limit in your area. Apply to multiple mortgage lenders including banks and credit cooperatives. Avoid multiple credit inquiries by shopping for mortgages within a 2-week period.

Experts say credit tightening won't be the biggest obstacle for homebuyers in 2018. The main obstacles for home buyers today will continue to be affordability and a lack of inventory.