Mortgage rates fell for the first time in a month, but their upward march is expected to continue.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. 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.
The 15-year fixed-rate average slipped to 2.35 percent with an average 0.6 point. It was 2.37 percent a week ago and 2.32 percent a year ago. The five-year adjustable-rate average crept down to 2.54 percent with an average 0.3 point. It was 2.56 percent a week ago and 2.89 percent a year ago.
“Mortgage rates have reversed their recent upward trend, decreasing for the first time in several weeks,” Paul Thomas, vice president of capital markets at Zillow, wrote in an email. “With inflation indicators largely meeting expectations last week, rates got some relief as markets recalibrated interest rate expectations during the week. The Federal Reserve announced [Wednesday] they will be tapering bond purchases that were in-line with market expectations at $15 billion per month ($10 billion in Treasuries and $5 billion in [mortgage-backed securities]) for November and December and gave themselves [the] flexibility to adjust the pace going forward if warranted by economic conditions.”
Since early in the pandemic, the Fed has been buying $120 billion in bonds each month to stabilize the financial market and hold down interest rates. The central bank will reduce its purchases by $15 billion starting this month and continuing in December. If it carries on at that pace, it could wind down its bond-buying program by June.
The Fed also announced that it was keeping its benchmark interest rate near zero and indicated that it doesn’t want to raise rates until the bond purchases have ended. The Federal Reserve doesn’t set mortgage rates, but its actions tend to influence them.
“With the job market looking strong, and inflation well above target and likely to stay there for some time, the Federal Reserve moved to begin to taper their asset purchases and signaled that they are beginning to think about raising short-term rates,” said Mike Fratantoni, chief economist at Mortgage Bankers Association. “The timing and amount of tapering are in line with market expectations and as previously communicated by the Fed. The statement continues to signal that they will wait to increase short-term rates until the economy has reached full employment.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found half the experts it surveyed expect rates to rise in the coming week.
“Tapering of the Fed’s balance sheet is now definitely happening and soon,” said Ken H. Johnson, real estate economist at Florida Atlantic University. “This will cause the demand for mortgage-backed securities and 10-year Treasury notes to drop, which will trigger a rise in rates.”
Although many experts seem sure rates will move higher now that the Fed has pulled back on its support, not all are convinced.
“Media are missing the point about where rates are going,” said Dick Lepre, senior loan officer at RPM Mortgage. “Tapering or even an end to [quantitative easing] is not what will drive rates. Market participants seem unconcerned about long-term inflation. The federal government debt-GDP ratio will constrain economic growth and keep inflation low in the longer term.”
Meanwhile, mortgage applications were down last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — was 3.3 percent lower than a week earlier. The purchase index fell 2 percent, while the refinance index decreased 4 percent. The refinance share of mortgage activity accounted for 61.9 percent of applications.
Refinance applications are expected to continue to decline in the coming year. In its annual forecast, the MBA predicted that refinance originations would drop by 62 percent in 2022, bringing down overall mortgage originations by 33 percent.
“Applications to refinance and buy a home both declined the last week of October,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “Millions of homeowners have lowered their monthly payments by refinancing over the past 22 months, which is why activity remains at levels last seen when rates were closer to 4 percent in January 2020. Home buyer demand is expected to remain strong even as rates rise, and the recent deceleration in home-price growth is good news for prospective buyers in the months ahead.”

