Posted on 11/10/21
| News Source: Washington Post
Mortgage rates fell below 3% for the first time since early October.
According to the latest data released Wednesday by Freddie Mac, the 30-year fixed-rate average dropped to 2.98% with an average 0.7 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 3.09% a week ago and 2.84% a year ago.
Freddie Mac released its weekly mortgage survey a day early this week because of the Veterans Day holiday. The federally chartered mortgage investor aggregates rates from around 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 fell to 2.27% with an average 0.6 point. It was 2.35% a week ago and 2.34% a year ago. The five-year adjustable rate average slipped to 2.53% with an average 0.4 point. It was 2.54% a week ago and 3.11% a year ago.
“Despite the re-acceleration of economic growth, the recent bond rally drove mortgage rates down for the second consecutive week,” Sam Khater, chief economist at Freddie Mac, said in a statement.
Mortgage rates tend to follow the same path of long-term bond yields, though that has been less the case during the pandemic. Mortgage rates have been influenced more by the Federal Reserve’s $120 billion monthly purchases of Treasurys and mortgage-backed securities. Last week, the Fed announced it would be tapering, or reducing, its purchases.
Many financial analysts expected rates to rise on the news but instead they have fallen as investors have been buying bonds. Rising bond prices mean lower yields and lower mortgage rates. The yield on the 10-year Treasury fell 1.46% on Tuesday, down from 1.68% on Oct. 21.
Last week’s passage of the infrastructure bill and the strong employment report also should have pushed rates higher. Instead, they moved lower.
“Even as the Fed has pulled back on purchases of mortgage-backed securities and inflation continues to run high – factors that tend to drive rates higher – the uptick hasn’t been as fast or as strong as expected, causing some investors to reevaluate their positions and build momentum behind the drop in rates,” said Danielle Hale, chief economist at Realtor.com. “Going forward, our expectation is that despite recent moves lower, mortgage rates will begin to climb as the Fed reduces its purchase of mortgage-backed securities by $5 billion per month in November and December.”
Meanwhile, mortgage applications rallied last week. According to the latest data from the Mortgage Bankers Association, the market composite index – a measure of total loan application volume – was 5.5% higher than a week earlier. The purchase index grew 3%, while the refinance index climbed 7%. The refinance share of mortgage activity accounted for 63.5% of applications.
“Although overall activity remains close to January 2020 lows, homeowners acted on the decrease in rates,” Joel Kan, an MBA economist, said in a statement. “Refinance activity was up 7% overall, with gains in both conventional and government refinances. Additionally, the average loan balance for a refinance application was the highest in a month. Purchase applications were also strong last week, increasing just under 3% and down only 4% from last year’s pace. The dip in rates might have helped to bring some buyers back into the market, but housing inventory is still extremely low and price growth remains elevated.”
The MBA also released its mortgage credit availability index (MCAI) that showed credit availability increased slightly in October. The MCAI rose 0.1% to 125.7 last month. An increase in the MCAI indicates lending standards are loosening, while a decrease signals they are tightening.
“Credit availability inched forward in October, but the overall index was 30% lower than February 2020 and close to the lowest supply of mortgage credit since 2014,” Kan said in a statement. “Tight credit availability, combined with ongoing supply and affordability challenges, are significant obstacles for some prospective first-time buyers.”