Freddie Mac, the state-licensed mortgage investor, aggregates interest rates from around 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Interest rates for refinancing may vary. It uses interest rates for high quality borrowers with strong credit scores and high down payments. Due to the criteria, these rates are not available to every borrower.
The 15-year fixed rate moving average fell to 4.26 percent, averaging 0.6 points. A week ago it was 4.58 percent and a year ago it was 2.10 percent. The five-year floating rate average slipped to 4.25 percent, averaging 0.3 points. A week ago it was 4.29 percent and a year ago it was 2.4 percent.
“Mortgage rates continue their bumpy ride amid mounting economic uncertainty,” wrote Lisa Sturtevant, Bright MLS’ chief economist, in an email.
Mortgage rates typically follow the 10-year Treasury yield, the most watched indicator of investor confidence. It fell after the US Federal Reserve raised interest rates by three quarters of a point last week, falling to 2.6 percent on Monday, the lowest since early April. But it has since recovered. The 10-year Treasury yield jumped to 2.75 percent on Tuesday, before slipping to 2.73 percent on Wednesday.
“Several economic indicators were pointing to a slowdown in economic activity — GDP fell for a second straight quarter, new home sales fell and consumer confidence fell on inflation and recession concerns,” said Paul Thomas, vice president of capital markets at Zillow. “Investors responded by pushing longer-term interest rates — such as yields on 10-year Treasuries and mortgage-backed securities — lower, forecasting that the Fed will have to slow rate hikes and potentially ease rates sooner than previously expected.”
The Fed has raised the federal funds rate four times this year to stem inflation, which remains at a 40-year high. Prices rose by 9.1 percent in June compared to the previous year. Although the central bank does not set mortgage rates, its actions affect it. Since January, home loan rates have risen by more than 2.5 percentage points.
But even before the Bureau of Economic Analysis released the latest GDP data, worries about an imminent recession caused mortgage rates to fall. After peaking at 5.81 percent in June, the 30-year fixed average is down 82 basis points. (One basis point equals 0.01 percentage point.)
The back and forth between recession fears and inflation concerns is causing volatility in mortgage rates. When investors worry about inflation, they stop buying bonds because the return on their investment will be lower when inflation is high. Inflation erodes the value of a bond’s future payments. Less demand leads to falling bond prices and rising yields. Since mortgage rates often follow the same path as 10-year Treasury yields, they too are rising.
But in a recession, bonds are considered a safe bet. Higher demand for bonds causes prices to rise and yields to fall, which usually leads to falling mortgage rates.
“Poor economic news has pushed mortgage rates lower over the past few weeks,” said Holden Lewis, home and mortgage expert at NerdWallet. “This happened despite persistently high inflation, a factor that tends to push interest rates higher. Bond investors vacillate between optimism about the inflation outlook when they cut mortgage rates and pessimism when they let rates rise. Last week was marked by a bottom in interest rates amid talk of a possible recession. But mortgage rates are already jumping; even if it doesn’t show up in the weekly rate average yet.”
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Bankrate.com, which publishes a weekly trend index of mortgage rates, found pundits divided on where rates will head in the coming week. 40 percent say they will rise, 30 percent say they will fall, and 30 percent say they will stay about the same.
HousingWire analyst Logan Mohtashami expects interest rates to rise.
“Following a large cut in interest rates, Federal Reserve members have tried full force to talk about higher interest rates and tighter conditions,” Mohtashami said. “The last thing they want to see is lower mortgage rates and rising stocks.”
Meanwhile, James Sahnger, a mortgage planner at C2 Financial, predicts they will remain stable.
“Expect continued day-to-day volatility,” Sahnger said. “In the last two months we’ve seen huge interest rate swings and mixed discussions about inflation, recession and jobs. I don’t expect Friday’s jobs report to provide additional clarity, but rates will likely be in the same range.”
Meanwhile, lower interest rates are fueling mortgage applications. Demand improved last week for the first time in a month. The composite market index — a measure of the total volume of loan applications — rose 1.2 percent from the previous week, according to data from the Mortgage Bankers Association.
The refinancing index rose 2 percent from the previous week but was 82 percent lower than a year earlier. The purchasing index rose by 1 percent. The refinancing portion of mortgage activity accounted for 30.8 percent of applications.
“Refinancing application activity picked up last week,” wrote Doug Duncan, Fannie Mae’s chief economist, in an email. “Mortgage rates have been falling since the second half of June but remain significantly higher than at the start of the year. Consequently, although funding activity has grown at the highest weekly rate this year (excluding weeks affected by public holidays), the overall level remains well below levels seen in 2020 and 2021.”
Unlike refinancing, purchase requests were essentially flat.
“Lower interest rates have not drawn people back into the housing market in significant numbers,” Sturtevant wrote. “Despite the decline in mortgage rates, new home purchase activity data suggests many buyers are on the sidelines. Mortgage applications have increased slightly. However, other data, including data on property showings and public viewings, indicate that buyer activity remains subdued despite lower interest rates.”