The latest economic and policy trends facing mortgage servicers

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Mortgage rates hold steady at 2.87%

Mortgage rates have stayed below 3% for most of 2021, in part because of aggressive monthly asset purchases by the Federal Reserve

The average 30-year fixed-rate mortgage held steady at 2.87% for the week ending in August 26, according to mortgage rates data released Thursday by Freddie Mac‘s PMMS.

The week prior, mortgage rates declined slightly to 2.86%. This week’s near constant mortgage rates may not yet reflect a rise in U.S. Treasury yields, which ticked up toward the end of the week. The 10-year Treasury yield for August 25 was 1.35.

According to Sam Khater, chief economist at Freddie Mac, concerns over COVID-19 stand in sharp contrast to the economic recovery, leading to stalled mortgage rates.

“The tug-of-war between the economic recovery and rising COVID-19 cases has left mortgage rates moving sideways over the last few weeks,” said Khater. “Overall, rates continue to be low, with a window of opportunity for those who did not refinance under 3%.”

Khater added that purchase application demand is improving, but very low inventory is the major obstacle to higher home sales.

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A year ago at this time, the 30-year fixed-rate mortgage averaged 2.91%. The 15-year fixed-rate mortgage rose slightly from the week prior, again, at 2.17%.

Mortgage rates, for most of 2021, have stayed below 3%, in part because of aggressive monthly asset purchases by the Federal Reserve. The central bank has hinted it will gradually taper its $120 billion in monthly purchases of U.S. Treasury bonds and mortgage backed securities.

Observers expect the Federal Reserve to start reducing its asset purchases by November.

In the meantime, sub-3% rates are still driving mortgage applications, including refinances, although the refinance wave has receded since its peak in 2020.

Mortgage applications rose 1.6% this week, moving in concert with a drop in Treasury yields, according to the latest report from the Mortgage Bankers Association.

Refinances increased 1% from the prior week and purchase mortgage applications were up 3%, according to the trade group, a height not seen since July. The index was still down 16% from the same time last year.

The share of refinances held steady from the previous week at 67.3% of total applications.

“Treasury yields fell last week, as investors continue to anxiously monitor if the rise in COVID-19 cases in several states starts to dampen economic activity,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “Mortgage rates slightly declined as a result, with the 30-year fixed rate decreasing for the first time in three weeks. Lower rates led to an increase in refinance applications, with government loan applications jumping 10 percent to the highest level since May 2021.”

Kan also noted that purchase applications for both conventional and government loans increased for the week ending Aug. 20. But the average loan size on purchase mortgage applications fell, he said, “which is potentially a sign that more first-time buyers looking for lower-priced homes are being helped by the recent uptick in for-sale inventory for both newly built homes and existing homes.”

While borrowers weigh the benefits of refinancing their mortgage, in the purchase market, they still face rising prices and a lack of inventory.

Nevertheless, the National Association of Realtors reported 5.99 million home sales for July, which exceeded estimates.

Home prices, meanwhile, have continued to rise. The median existing-home price for all housing types in July was $359,900, the trade group reported, which marked a 17.8% increase from last year at the same time.

The lack of inventory is not expected to improve soon. Last week, the U.S. Census Bureau reported that housing starts hit 1,534,000 for July, missing estimates by 7%, but still a year-over-year improvement.

“There are now almost 690,000 single-family homes under construction – the largest number since 2007,” said Mike Fratantoni, the MBA’s chief economist. “This is clearly a positive sign given the remarkably low levels of inventory on the market.”

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