Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders nationwide to come up with weekly national averages. It uses rates for high-quality borrowers with high credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.
The survey is based on home purchase mortgages, which means rates for refinances may be higher. The price adjustment for refinance transactions that took effect in December is adding to the cost. The adjustment, which applies to all Fannie Mae and Freddie Mac refinances, is 0.5 percent of the loan amount. That works out to $1,500 on a $300,000 loan.
The 15-year fixed-rate average slid to 2.20 percent with an average 0.7 point. It was 2.26 percent a week ago and 2.51 percent a year ago. The five-year adjustable rate average fell to 2.52 percent with an average 0.2 point. It was 2.54 percent a week ago and 3.02 percent a year ago.
“Mortgage rates fell this week, reaching their lowest level since the winter,” said Matthew Speakman, a Zillow economist. “Despite generally strong headline June jobs figures, a booming stock market and broader signs that the economy continues to recover, investors are continuing to downwardly revise their very optimistic forecasts for economic growth that they made earlier in the year. This shift in sentiment is placing downward pressure on longer-term Treasury yields and the mortgage rates they influence.”
Despite June’s employment report showing improvements in the labor market, the yield on the 10-year Treasury sank to its lowest point since February this week, closing at 1.33 percent on Wednesday. Wall Street analysts are baffled by the drop. Many predicted as the economy improved that investors would ditch bonds, causing yields to rise near 2 percent at this point. Instead, they have fallen.
“We have come a long way from the inflation concerns rocking the markets in the first and second quarters,” said James Sahnger, a mortgage planner at C2 Financial. “Since peaking at 1.75 percent on March 31, [10-year Treasury yields] have fallen down to a low of 1.298 percent on Wednesday before nudging up from there. [Mortgage] rates can move down a bit from here but have some technical support levels at 1.29 percent and 1.23 percent on the 10-year Treasury that may prove tough to crack. … We are still waiting for mortgage rates to catch up to Treasurys to match their decline.”
Minutes from the Federal Reserve’s June meeting were released this week. They indicated that Fed officials have begun talking about tapering their bond-buying program, which has kept mortgage rates low, but not many seem eager to begin the process. Although financial markets had a muted reaction to the news, it is expected that when the Fed does begin winding down its purchases, that will send mortgage rates higher.
“Markets are trying to anticipate the timing of the Fed’s next move and this week, the Fed meeting minutes conveyed more patience toward tapering and rate hikes than the market had expected immediately following the late June meeting,” said Danielle Hale, chief economist at Realtor.com. “In other words, [mortgage] rates slipped as investors realized that the last Fed discussion may not have been as hawkish as was originally believed. Looking forward, we expect rates to bounce roughly around the 3 percent mark until at least August, which is the earliest that the Fed is likely to provide a clearer timeline for scaling back its mortgage-backed security purchases.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found that more than half of the experts it surveyed expect rates to go down in the coming week.
“Right now, the spread between 30-year fixed mortgage rates and 10-year Treasury yields is 1.8 percent,” said Ken H. Johnson, real estate economist at Florida Atlantic University. “Normally, this spread falls between 1.7 percent and 1.9 percent. Ten-year yields are falling noticeably after the holiday. This should result in a slight downturn in long-term mortgage rates. In the coming week, 30-year mortgage rates should fall marginally.”
Meanwhile, mortgage applications were down for the second week in a row, dropping to their lowest level since the beginning of 2020. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 1.8 percent from a week earlier. The refinance index fell 2 percent, while the purchase index slipped 1 percent. The refinance share of mortgage activity accounted for 61.6 percent of applications.
“Mortgage applications for both refinances and home purchases fell on a weekly and annual basis last week,” said Bob Broeksmit, MBA president and chief executive. “Mortgage rates are lower than they were last summer, but many homeowners have already refinanced at rates that were even lower around the end of last year. Despite meager supply and swift home-price growth, the purchase market remains strong. The improving economy, continuous job and wage growth, and mortgage rates around 3 percent are positive signs for a solid second half of the year.”
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