After making a big jump last week, the 30-year fixed mortgage rate — the most popular home loan product — paused as investors waited to see what the Federal Reserve had to say when the minutes from its July meeting were released.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. 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. Freddie Mac conducts the survey early in the week, which means it was completed before the Fed news.
The survey is based on home purchase mortgages. Rates for refinances may be different. As of Aug. 1, borrowers refinancing their mortgages will no longer have to pay the adverse market refinance fee. The fee, which was imposed on mortgages sold to Fannie Mae and Freddie Mac, added about $1,500 to a $300,000 loan. The surcharge was intended to offset covid-related losses.
The 15-year fixed-rate average ticked up to 2.16 percent with an average 0.6 point. It was 2.15 percent a week ago and 2.54 percent a year ago. The five-year adjustable rate average slid to 2.43 percent with an average 0.3 point. It was 2.44 percent a week ago and 2.91 percent a year ago.
“Mortgage rates were flat this week as investors stood pat, waiting for more signs dictating the economy’s path forward and potential key decisions made by the Federal Reserve,” said Matthew Speakman, a Zillow senior economist. “The pause in mortgage rate increases [was] also likely the result of more data releases that point to a weakening economic outlook. Big misses in consumer sentiment and retail sales suggest that rising covid cases are hindering some economic activity.”
The Federal Reserve released the minutes from its July meeting on Wednesday, which showed it is discussing when and how it will begin reducing its monthly bond purchases. The Fed has been buying $120 billion in Treasurys and mortgage-backed securities each month since early in the pandemic.
“Most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated. It went on to say “some” members preferred to wait until early in 2022 to start tapering.
Although the central bank made clear the reduction in bond buying is not a prelude to a rate hike, the news had an immediate effect on the stock market and is likely to put upward pressure on mortgage rates going forward. Back in 2013 when the Fed announced it would begin scaling back its bond-buying program following the Great Recession, mortgage rates soared.
“The Fed is expected to begin tapering their asset purchase program sometime between January and March in 2022. Along with a reduction in secondary mortgage-backed security (MBS) purchases by banks, we think the announcement of Fed tapering has the potential to increase mortgage rates in the range of 25 basis points,” Preetam Purohit, head of hedging and analytics at Embrace Home Loans, wrote in an email. “We also do not expect any interest rate hikes until the middle of 2023: The central bank will not shock the market by tapering asset purchases and raising interest rates at the same time.”
The Federal Reserve does not set mortgage rates. Its actions may influence them, but mortgage rates are swayed heavily by the expectations of investors. Right now, world events are impacting their decisions.
“Afghanistan, Haiti and the delta covid-19 variant become economic output distractions,” said Jeff Lazerson, president of MortgageGrader.
Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed divided on where rates are headed in the coming week. Forty percent say rates are headed down, 40 percent say they will remain about the same and 20 percent say they will go up.
“As the stock market tensions become apparent from the dire Afghanistan situation and world tensions, look for the investor flight to quality and safety to hold mortgage rates in place,” said Derek Egeberg, certified mortgage planning specialist and branch manager at Academy Mortgage.
Meanwhile, mortgage applications subsided last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 3.9 percent from a week earlier. The refinance index fell 5 percent, while the purchase index slipped 1 percent. The refinance share of mortgage activity accounted for 67.3 percent of applications.
“Another slight increase in mortgage rates cooled refinances last week, but refinance activity still comprised over two-thirds of all applications and remained close to year-ago levels,” said Bob Broeksmit, MBA president and CEO. “The supply of homes for sale has lagged all summer and is preventing the purchase market from breaking out of its current slump. Buyer competition is fierce, home-price appreciation is swift, and average loan balances hover at record highs.”
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