The 15-year fixed-rate average jumped to 3.06 percent with an average 0.7 point. It was 2.77 percent a week ago and 3.71 percent a year ago. The 15-year fixed average rose above 3 percent for the first time since late January.
The five-year adjustable rate average rose to 3.11 percent with an average 0.2 point. It was 3.01 percent a week ago and 3.84 percent a year ago.
“Mortgage rates jumped sharply this week, as volatile swings in stock markets, government spending to help cushion the growing fallout from the coronavirus crisis and underlying stresses in the broader markets weakened demand for government debt,” said Matthew Speakman, a Zillow economist.
The Federal Reserve slashed its benchmark rate to zero on Sunday and began purchasing $500 billion in U.S. Treasurys and $200 billion in mortgage-backed securities, a move reminiscent of the Great Recession’s quantitative easing program.
“What the Fed did in lowering the overnight rate is mainly an attention grabber,” said Dick Lepre, a senior loan officer at RPM Mortgage in San Francisco. “It doesn’t have that much effect on anything. But it sure got everyone’s attention. … I think the most important thing the Fed did was to announce they were going to increase the money supply by buying Treasurys and buying mortgage debt.”
It is important to remember the Fed does not set mortgage rates. Mortgage rates are more closely linked to long-term bonds. The yield on the 10-year Treasury grew to 1.18 percent Wednesday, its highest level this month. With institutional investors selling bonds to raise cash, the 10-year yield has more than doubled since earlier this month.
“Under normal circumstances, we would see the bond market improve as stocks plummet, but we are not in a normal market,” said Elizabeth Rose, certified mortgage planning specialist at AmCap Home Loans in Plano, Tex. “Stocks are taking a beating but instead of money flowing into bonds — thus rates improving — investors are selling bonds to cover margin calls.”
But even more than rising bond yields, the number of borrowers seeking to refinance has kept mortgage rates higher than they normally would be.
“There’s a massive amount of inbound inquiry coming into the system,” said Craig Strent, CEO of Apex Home Loans. “So much so that rates should actually be a lot lower than where they are on the technical factors. And rates are staying stubbornly high right now because of capacity issues in the system.”
Because many people are stuck at home with time to search the Internet and rates near all-time lows, mortgage lenders are facing a tsunami of mortgage applications. The Mortgage Bankers Association’s market composite index, which measures total loan application volume, decreased 8.4 percent last week, mainly because rates ticked up. But volume was significantly higher than it had been a year ago.
“Low rates continue to lead to a substantial amount of mortgage applications,” said Bob Broeksmit, MBA president and CEO. “Despite a slight pullback in activity last week from the robust levels seen two weeks ago, refinance and purchase applications were up on an annual basis by 402 percent and 11 percent, respectively. With rates expected to remain low for the foreseeable future, the mortgage industry is committed to playing a role in the economic stimulus efforts by helping homeowners more efficiently refinance their mortgages, thereby reducing their monthly payments.”
The refinance index dropped 10 percent, while the purchase index slipped 1 percent. The refinance share of mortgage activity accounted for 74.5 percent of applications.
Lepre says rates can still move lower and that they haven’t hit the floor yet.
“Over the next few months, once these capacity issues are addressed and assuming the 10-year Treasury stays where it is, I think rates will go a quarter to three-eighths [percent] beneath where they are today,” he said.
“While a cut to the Fed funds rate does not mean lower mortgage rates, a stimulus plan to purchase bonds typically would lead to lower rates,” Rose said. “So, on the surface, this may sound like music to mortgage rates. But when looking at the big picture, it probably is not. The government will have to finance the stimulus, which they do by selling Treasurys. Although the Fed has committed to purchasing Treasurys and mortgage bonds, an oversupply will flood the market, which will push mortgage rates higher.”
The MBA released its mortgage credit availability index (MCAI) that showed credit availability decreased in February. The MCAI fell 0.3 percent to 181.3 last month. A decline in the MCAI indicates lending standards are tightening, while an increase signals they are loosening.
“Mortgage credit supply decreased in February, as both conforming and jumbo segments of the market saw a decline,” Joel Kan, an MBA economist, said in a statement. “Last month’s activity was the calm before the storm. Mortgage rates dropped steeply in the last week of February and a large surge of refinance activity followed. Investors may adjust their future mortgage credit offerings based on the sudden upswing in demand.”
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