Inflation Fears Push Mortgage Rates Higher

After three weeks without any movement, rates for 30-year fixed-rate mortgages rose 0.15 percentage points last week to an average of 6.03% with 0.3 point, according to the Freddie Mac Primary Mortgage Market Survey.

Analysts blame the sudden jump in rates on increased concerns over inflation. "March's index of leading indicators showed a tepid increase of 0.1 percent, after five consecutive months of decline," says Frank Nothaft, Freddie Mac vice president and chief economist. "As a result, trading of federal funds futures contracts implied a reduced likelihood of a substantial rate cut at the next Federal Open Market Committee meeting."

The other three mortgage rates recorded in the survey also jumped on the news. The rates for 15-year FRMs reached 5.62% with 0.3 point -- up almost an entire quarter percentage point from last week's average of 5.40% with 0.5 point. The average rate for 5/1-year adjustable rate mortgages rose to 5.68%, up 0.20 percentage points and 1-year ARMs rose a similar 0.19 percentage points to 5.29% with 0.5 point.

The next Federal Reserve committee meeting is scheduled for this week. The current federal funds rate sits at 2.25%, and the probability of a rate change implied by futures contracts suggests the Fed will announce a small quarter percentage point decrease.

The recent jump is the first significant movement in the average mortgage rates since the Fed decided in March to cut the federal funds rate by 0.75 percentage points. That decision set off declines in 30-year and 15-year fixed mortgage rates, which fell 0.26 and 0.33 percentage points, respectively.