Mortgage rates sink to record low again

The 30-year fixed rate has never been this low since Freddie Mac began tracking mortgage rates in 1971. It surpassed the previous low of 2.72 percent, set last month, and hasn’t been above 3 percent since July.

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 dropped to 2.26 percent with an average 0.6 point. It was 2.28 percent a week ago and 3.14 percent a year ago. The five-year adjustable rate average went down to 2.86 percent with an average 0.3 point. It was 3.16 percent a week ago and 3.39 percent a year ago.

“Per usual, market activity in the days leading up to and immediately following the Thanksgiving holiday was fairly quiet, but recent days has seen the bond market quickly shift gears,” said Matthew Speakman, a Zillow economist. “Treasury yields, which typically coincide with shifts in mortgage rates, rose to their highest level in three weeks on Tuesday following renewed discussions regarding more fiscal relief. But rather than rising with them, mortgage rates have instead held firm.”

In the past, one of the more reliable indicators of where mortgage rates were headed was the movement of the 10-year Treasury. When yields on long-term bonds went up, rates usually did as well. The converse was also true. When yields fell, rates also dropped. (Yields move inversely to prices.)

But the past several months, that relationship has been disconnected. This week, the yield on the 10-year Treasury began to climb on talk of a new stimulus deal. It rose to its highest level in three weeks, reaching 0.95 percent on Wednesday.

Two notable reasons why the relationship between long-term bonds and mortgage rates has been temporarily severed is the Federal Reserve’s intervention in the market and the increased volume of mortgage applications caused by low rates.

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. The Fed’s unlimited MBS buying has been pushing prices up and driving down rates.

Low mortgage rates also created a refinancing boom. Lenders, pushed to capacity, in some cases have kept rates artificially higher than they would have been to throttle demand.

Those two factors lately have exerted a greater influence on rates than the movement of the 10-year Treasury.

“There has been a pretty big sell off in Treasurys to start December and we’ve seen a split in yields with the 10-year Treasury up 0.10 percent in yield,” said Michael Becker, branch manager of Sierra Pacific Mortgage in Lutherville, Md. “Mortgage-backed securities have sold off as well to start the month. The good news is that mortgage rates have hardly moved. I think this is because lenders have been sitting on high margins. Rates could have been a little lower given the prices on mortgage-backed securities, but with so much business coming in lenders have been able to keep high margins and not reduce rates too much.”

“As we head into the new week after the holiday, there’s not too much excitement in the air,” said Jennifer Kouchis, senior vice president of real estate lending at VyStar Credit Union in Jacksonville, Fla. “The bond market has been strong and mortgage rates are for the most part in-line with last week’s rates. For now, rates are stable with minimum movement expected.”

Meanwhile, mortgages applications were flat during the week leading into the Thanksgiving holiday. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 0.6 percent from a week earlier. The purchase index rose 9 percent from the previous week and was 28 percent higher than a year ago. The refinance index went down 5 percent but was 102 percent higher than a year ago. The refinance share of mortgage activity accounted for 69.5 percent of applications.

“The housing market continues to be a bright spot for the economy amidst the ongoing challenges brought forth by the pandemic,” said Bob Broeksmit, MBA president and CEO. “Purchase applications jumped the week of Thanksgiving and have now increased on an annual basis every week for seven consecutive months. Mortgage rates under 3 percent are also keeping refinance levels significantly above year-ago levels. With strong refinance and purchase activity anticipated in December, total mortgage origination volume remains on pace to finish the year at a high not seen since 2003.”