Mortgage rates moved higher this week after the U.S. Senate passed its version of the tax bill. But global and domestic events may push them back down.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 3.94 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.90 percent a week ago and 4.13 percent a year ago.
The 15-year fixed-rate average rose to 3.36 percent with an average 0.5 point. It was 3.30 percent a week ago and 3.36 percent a year ago. The five-year adjustable rate average rose to 3.35 percent with an average 0.3 point. It was 3.32 percent a week ago and 3.17 percent a year ago.
Indications were that mortgage rates were headed higher after the Senate’s vote on its tax legislation, which signaled increased federal borrowing.
“A tax cut will only lead to accelerating inflation and higher rates,” said Joel Naroff, president and chief economist of Naroff Economics.
But just as home loan rates were gathering steam, investors became anxious about tensions abroad and the looming deadline to fund the federal government.
“It seemed at the time that mortgage rates were poised to continue rising,” said Michael Becher, branch manger of Sierra Pacific Mortgage. “But this week markets have turned their attention elsewhere. Concern about China’s economy, continuing tensions with North Korea, turmoil in the Middle East as a result of Trump declaring Jerusalem the capital of Israel, and a possible U.S. government shutdown have all contributed to a flight to safety trade that has seen Treasury yields and mortgage rates drop.”
With the Federal Reserve likely to raise its benchmark rate next week, the home loan rates could enter a period of volatility.
Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts it surveyed were almost equally divided on where rates were headed. About a third predict they will go up, another third say they will go down and another third expect them to hold steady. Shashank Shekhar, chief executive of Arcus Lending, is one who anticipates rates will rise.
“The bond market (which has a direct effect on long-term fixed mortgage rates) is effectively on pause waiting to learn more about the looming government shutdown and the progress with the tax reform bill,” Shekhar said. “Positive news on any of those two fronts could cause a minor sell-off of bonds resulting in higher mortgage rates for consumers.”
Fueled by a surge in refinances, mortgage applications grew last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 4.7 percent. The refinance index jumped 9 percent, while the purchase index rose 2 percent.
The refinance share of mortgage activity accounted for 51.6 percent of all applications.
“Application volume bounced back after Thanksgiving, with refinance volume increasing on a slight dip in 30-year rates,” said Michael Fratantoni, MBA chief economist. “The refinance share is at its highest level since September. Purchase volume continues to be supported by a strengthening job market.”
The MBA also released its mortgage credit availability index (MCAI) this week that showed credit availability increased in November. The MCAI rose 0.8 percent to 182.4 last month. A decline in the MCAI indicates that lending standards are tightening, while an increase signals they are loosening.
“Mortgage credit availability increased in November driven by a net increase in investor offerings,” said Lynn Fisher, MBA’s vice president of research and economics. “While the number of offerings for government backed programs (FHA/VA/USDA) declined modestly, conventional offerings increased more strongly over the month among both jumbo and conforming programs.”
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