Mortgage rates increase but remain below 3 percent
Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national average mortgage rates. It uses rates for high-quality borrowers who tend to have strong credit scores and large down payments. These rates are not available to every borrower.
The 15-year fixed-rate average slipped to 2.46 percent with an average 0.8 point. It was 2.44 percent a week ago and 3.07 percent a year ago. The five-year adjustable-rate average held steady at 2.9 percent with an average 0.4 point, same as a week ago. It was 3.35 percent a year ago.
“Mortgage rates moved higher this week, rising in recent days at the fastest pace in months,” said Matthew Speakman, a Zillow economist. “The strong increase ended a six-week stretch in which rates trended slowly and consistently downward, a trajectory that reflected the pessimism brought upon by a surge in coronavirus cases and uncertain availability of fiscal relief. Stronger-than-expected inflation figures over the past couple days, along with some encouraging developments regarding a covid-19 vaccine, fueled the increase — although doubts about the federal government’s ability to agree on a new coronavirus relief bill appeared to hinder some of the upward motion.”
For the past several months, the Federal Reserve has been buying mortgage-backed securities — or MBS as they are often known — which are bundles of mortgages sold on a secondary market. When a borrower takes out a loan such as a 30-year fixed-rate mortgage, a lender often bundles that loan with other loans into an MBS and then sells it to investors.
Interest rates for loans are usually based on MBS prices. When MBS prices go up, secondary market prices go down. (It’s not unlike U.S. Treasurys. When prices go up, yields go down.) The Fed’s unlimited MBS buying has been pushing prices up and driving down rates.
“Mortgage-backed securities have sold off pretty dramatically in the last few days,” said Michael Becker, branch manager at Sierra Pacific Mortgage in Lutherville, Md. “This is sending mortgage rates higher. Whether this is simply a correction from overbought conditions in the mortgage-backed securities market over the last few weeks or the beginning of rates moving higher and higher, only time will tell.”
The yield on the 10-year Treasury has moved steadily higher over the past week. From a low of 0.52 percent on Aug. 4 it closed at 0.69 percent on Wednesday. Les Parker, managing director at Transformational Mortgage Solutions in Trevose, Pa., would not be surprised to see yields continue to rise.
“If they do, then expect mortgages rates to rise more,” he said. “Why? Because the Fed will step back from supporting mortgage-backed securities and allow the relationship between the 10-year yield and mortgage rates to move towards historical norms.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found that two-thirds of the experts it surveyed predict rates to go up in the coming week. Elizabeth Rose, sales manager at AmCap Mortgage in Dallas, disagrees. She expects rates to hold steady.
“News of a possible vaccine, coupled with hotter-than-expected inflation numbers and plenty of supply, sent the mortgage bond market over a cliff, pushing rates slightly higher this week,” Rose said. “The bond market was overdue for a correction. The question now becomes, is this just a temporary correction or the beginning of a new trend to higher rates? The good news is we are near a support level that should hold in the week ahead, keeping mortgage bonds steady and rates unchanged.”
Meanwhile, mortgage applications picked up last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — increased 6.8 percent from a week earlier. The purchase index rose 2 percent from the previous week and was up 22 percent year-over-year. The refinance index went up 9 percent and was 47 percent higher than a year ago. The refinance share of mortgage activity accounted for 65.7 percent of applications, its highest level since May.
“Buyers moved to take advantage of declining interest rates,” said George Ratiu, senior economist at Realtor.com. “With historically low interest rates, applications increased because buyers and homeowners are moving ahead with plans to find a new normal, amid an economic and health landscape still looking for its footing.”
The MBA also released its mortgage credit availability index (MCAI) that showed credit availability increased in July. The MCAI rose 1.5 percent to 126.9 last month. An increase in the MCAI indicates lending standards are loosening, while a decrease signals they are tightening.
“Credit availability rose slightly in July — the first increase in eight months — as the supply of certain types of adjustable rate mortgages (ARMs) and jumbo loans increased,” Joel Kan, an MBA economist, said in a statement. “The improvement was more of a leveling off from the precipitous drop earlier this spring. Credit availability is still over 30 percent lower than a year ago and near its lowest level since 2014. The July data signals that lenders saw conditions improve this summer, as forbearance requests flattened, and record-low mortgage rates spurred strong levels of purchase and refinance activity.”
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