MortgageMortgage Rates

Mortgage rates fall back down to 2.9%

A likely result of treasury yields also slipping downwards

The average 30-year fixed-rate mortgage fell eight basis points from the week prior to 2.9%, according to data released Thursday by Freddie Mac‘s PMMS.

According to Sam Khater, Freddie Mac’s chief economist, last week’s dip followed the concurrent drop in U.S. Treasury yields earlier this week.

“While mortgage rates tend to follow Treasury yields closely, other factors can be impactful such as the labor markets, which are continuing to improve per last week’s jobs report,” said Khater. “We expect economic growth to gradually drive interest rates higher, but homebuyers and refinance borrowers still have an opportunity to take advantage of 30-year rates that are expected to continue to hover around three percent.”

Mortgage rates have been in a state of limbo for several months now. Economists and investors are closely watching for any indication that the Federal Reserve may change its position on the tapering of assets. Minutes released on Wednesday of the Fed’s June FOMC meeting revealed the conversation may be happening sooner rather than later.

Several Fed officials said they would like to reduce the pace of purchasing mortgage securities “more quickly or earlier” in light of skyrocketing home prices.

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But other Fed officials pushed back, saying that it was preferable to slow down the purchases. Since March 2020, the Fed’s asset purchases are split between $80 billion of Treasurys and $40 billion of agency MBS each month, keeping interest rates low.

Despite June’s minutes just now being released, the industry is already anticipating rates rising to a more standard level expected in today’s market. A year ago at this time, the 30-year FRM averaged 3.03%.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) reported the percentage of respondents who expect mortgage rates to go up in the next 12 months increased from 49% to 57%. The share who think mortgage rates will stay the same decreased from 38% to 30%. A remaining 6% are hopeful that they will continue to drop.

Even with consistently low rates, home prices and lack of inventory are causing a market slowdown. Mortgage applications fell for the third straight week, according to a Wednesday report from the Mortgage Bankers Association.

“Treasury yields have been volatile despite mostly positive economic news, including last week’s June jobs report, which showed ongoing improvements in the labor market,” said Joel Kan, MBA associate vice president of economic and industry forecasting.

Kan noted while the 30-year fixed rate was 11 basis points lower than the same week a year ago, refinance applications have trended lower than 2020 levels for the past four months.

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