The 15-year fixed-rate average reached 3.18 percent with an average 0.5 point, up from 3.15 percent a week ago and 4.29 percent a year ago. The five-year adjustable rate average reached 3.4 percent with an average 0.3 point, up from 3.35 percent a week ago and 4.14 percent a year ago.
Earlier this month, President Trump announced a truce, with the United States calling off a planned tariff increase in exchange for China purchasing $50 billion in U.S. farm products.
“The dramatic year-long slide in mortgage rates has abated partly in response to the potential improvement in trade negotiations and partly due to the still underrated strength of economic fundamentals,” Sam Khater, Freddie Mac’s chief economist, said in an email. “Going forward, while the level of rates remain a positive force for the housing market and home buyer demand continues to improve, the lack of housing supply is a major impediment to not just the housing market but the continued economic recovery.”
Preetam Purohit, capital markets trader at Embrace Home Loans in Middletown, R.I., said geopolitical concerns — such as U.S.-China trade and Brexit — as well as corporate earnings will continue to drive mortgage rates this year.
“The trade situation has improved considerably as indicated by the higher rates we’ve seen over the past couple of weeks,” Purohit said. “Corporate earnings season is underway, and the numbers so far have been better than expected. I expect the mortgage rates to trade in a tight 25 basis points range with 30-year rates hovering between 3.75 percent and 4 percent until the end of the year.”
Though triggered by economic news, mortgage rates tend to follow the trajectory of the 10-year Treasury yield. When investors see signals of weakness in the economy, they tend to move their money out of the stock market into bonds. When more investors are into bonds, the yield tends to fall. The opposite happens when investors see a strong economy: They move their money from bonds into the stock market and the 10-year Treasury yield rises.
“The 10-year Treasury is used by the public as a simple proxy for mortgage rates because they tend to move and behave similarly,” said Brian Koss, executive vice president of Mortgage Network in Danvers, Mass.
“They are not formally tied together in any way,” Koss added. “But investors who are interested in mortgage-backed securities are often also interested in midterm Treasurys like the 10-year, because from an investment standpoint, most mortgages don’t last anywhere near their normal 30-year terms. In fact, five to 10 years is more likely, because homeowners often move or refinance during that time frame.”
Lawrence Yun, chief economist of the National Association of Realtors, said despite the recent rise in rates, buyers are still paying less for a mortgage than they did last year at this time.
On a $200,000 mortgage, the drop in mortgage rates from 4.86 percent last year to 3.75 percent means buyers save about $167 per month, Yun said.
“Some buyers anticipate that mortgage rates will drop if the Federal Reserve reduces interest rates, as they have hinted they will, at the end of October,” Yun said. “But those borrowers could be disappointed because the Fed’s rate and mortgage rates are not directly tied.”
Meanwhile, mortgage applications dropped from a week earlier, according to the Mortgage Bankers Association. The market composite index, which measures total loan application volume, fell 11.9 percent. The refinance index went down 17 percent, and the purchase index fell 4 percent.
The refinance share of mortgage activity represented 58.5 percent of all applications.
“Interest rates continue to be volatile, with Brexit votes and ongoing trade negotiations swinging rates higher or lower on any given day. Last week, mortgage rates jumped 10 basis points and were above 4 percent for the first time since September,” Mike Fratantoni, the Mortgage Bankers Association senior vice president and chief economist, said in a statement. “The increase in mortgage rates caused refinance applications to drop 17 percent, and by more than 20 percent for conventional loans. Borrowers with larger loans are the most sensitive to rate changes, and with rates climbing higher last week, the average size of a refinance loan application fell to its lowest level this year.”