The 15-year fixed-rate average reached 2.37 percent, ticking up from 2.36 percent, with an average 0.7 point. The five-year adjustable-rate average of 2.89 percent, with an average 0.2 point, was down from the 2.90 percent of the previous week. The 15-year rate was 3.05 percent and the five-year was 3.35 percent a year ago.
“Mortgage rates have been holding steady for the past three months at a very low rate because the Federal Reserve is determined to provide maximum liquidity to consumers and keep mortgage rates low,” said Lawrence Yun, chief economist of the National Association of Realtors. “The Federal Reserve continues to keep the Federal Funds rate near zero and to buy mortgage-backed securities, which offsets all the political and economic shocks we’ve seen in recent months.”
In addition to Fed policies, the stock market, the yield on 10-year Treasury notes, the volume of mortgage applications and uncertainty about the election and the coronavirus pandemic are driving mortgage rates. The stock market this week fell and rose significantly over President’s Trump’s shifting positions on whether he would sign a stimulus plan before the Nov. 3 election.
“The biggest impacts on mortgage rates are unemployment, market uncertainty and political uncertainty,” said William Tessar, president of Civic Financial Services in Redondo Beach, Calif. “With the ongoing pandemic and a presidential election only four weeks away, there is plenty of concern about where the economy is headed, which is a contributing factor in keeping downward pressure on rates.”
Mortgage rates typically fluctuate based on changes in the bond market, but recently mortgage rates have remained steadily low despite an increase in Treasury yields, said Matthew Speakman, an economist for Zillow.
“Typically, Treasury yields and mortgage rates have a close relationship, with a movement in the former usually dictating a change to the latter,” Speakman said. “However, the pandemic has frayed this relationship and mortgage rates remain much higher than you would expect them to be, given the level of Treasury yields.”
Speakman said he anticipates that the upward movement of Treasury yields eventually will increase mortgage rates. There appears to be “a bit of a buffer before they head in that direction, and generally it means that it will take a larger increase in Treasurys before we see mortgage rates head higher,” he said.
With so much political and economic upheaval, what should borrowers expect mortgage rates to do during the next few months?
“Of course, there are a number of unpredictable variables that could impact the way rates will look a few months from now. The usual suspect of how well we continue to recover economically from the impacts of the coronavirus is certainly near the top of that list,” said Brad Seamans, a trader in Cherry Creek Mortgage Co.’s capital markets group in Denver. “However, the timing of a second round of stimulus funding could also play a key role — especially if it is approved by Congress post-election, incentivizing the Fed to continue buying mortgage bonds and creating further downward pressure on rates.”
For homeowners who are refinancing or buyers taking out a $400,000 loan, the rate for a 30-year fixed-rate loan this week of 2.87 percent saves approximately $150 per month compared to a loan at the average rate last year at this time of 3.57 percent.
“That $150 per month comes to nearly $2,000 per year, like getting a tax cut for people who are refinancing,” Yun said. “Buyers this year will face some sticker shock if they want to trade up to a bigger house, but the low rates mitigate that price increase.”
The averages are calculated from Freddie Mac’s Primary Mortgage Market Survey of about 80 lenders nationwide every Monday to Wednesday. The survey is confined to rates on conventional home loans for borrowers who make a 20 percent down payment and have excellent credit. So borrowers who make a smaller down payment and who have a lower credit score could pay higher rates.
The low rates are driving buyer demand nationwide as evidenced by market activity and mortgage applications.
“The year-long slide in mortgage rates seems to be ending as rates have flattened over the last month and the economic rebound has slowed,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “But with near record low rates, buyer demand remains robust with strong first-time buyers coming into the market. The demand is particularly strong in more affordable regions of the country such as the Midwest, where home prices are accelerating at the highest rates over the last two decades.”
Moreover, the number of people seeking mortgages rose last week, according to the Mortgage Bankers Association.
The market composite index, which measures the total number of applications, increased 4.6 percent. The purchase index fell 1 percent but was 21 percent higher than a year ago. The refinance index rose 8 percent from a week earlier and was 50 percent higher than a year ago.
“The ongoing refinance wave is holding steady this fall, and activity was up 50 percent from last year,” said Bob Broeksmit, president and chief executive of the Mortgage Bankers Association. “Applications to buy a home decreased slightly for the second consecutive week, but were still up 21 percent year over year. Although buyer demand remains strong, housing supply is low in many parts of the country. Prospective buyers — especially at the entry-level portion of the market — are seeing stiff competition for the limited number of homes for sale in their price range.”
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