Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national average mortgage rates. 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.
Because the survey is based on home purchase mortgages, rates for refinances may be higher. The price adjustment for refinance transactions that went into effect in December is adding to the cost. The adjustment, which applies to all Fannie Mae and Freddie Mac refinances, is 0.5 percent of the loan amount. That works out to $1,500 on a $300,000 loan.
The 15-year fixed-rate average was unchanged at 2.45 percent with an average 0.6 point. It was 2.82 percent a year ago. The five-year adjustable rate average also didn’t move, holding steady at 2.84 percent with an average 0.3 point. It was 3.4 percent a year ago.
“Mortgage rates have been pushed upward in the first quarter by general improvements in the economy, rising inflation expectations and the likelihood that more Treasurys will be issued to support the federal government’s plans for fiscal stimulus and other spending initiatives,” said Matthew Speakman, a Zillow economist. “Treasury yields — which generally dictate the path of mortgage rates — rose modestly on Wednesday after President Biden unveiled the details surrounding his proposed infrastructure plan. In general, as the economy continues to thaw from its pandemic-induced freeze and government spending increases, upward pressure on mortgage rates should remain.”
The yield on the 10-year Treasury rose to a pre-pandemic level this week, hitting 1.77 percent during intraday trading on Tuesday. It closed the day at 1.73 percent before ticking up to 1.74 percent on Wednesday. This leading indicator started the year below 1 percent.
Rising yields are a result of increased government spending, which is funded by bonds. As supply of bonds increases, the price drops and yields go up. With President Biden announcing his new infrastructure plan on top of the stimulus plan, investors are anticipating government spending to continue at high levels.
This week was also the end of the first quarter, which put downward pressure on yields. Some investors favor more liquid assets such as bonds at this time of year. Others invest in Treasurys to match benchmark indexes. This demand for bonds prevented yields from rising as much as they could have.
“The 10-year yield is in a major tug of war battle between 1.64 percent and 1.75 percent,” said Logan Mohtashami, housing analyst at Housing Wire. “Now I believe bond yields are still too low based on our economic data. However, short term, we can’t break above 1.75 percent. We should see lower yields if this continues. Keep an eye out on that level and any good news on the vaccine.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found almost half of the experts it surveyed expect rates to go up in the coming week.
“Currently, the 10-year [Treasury] sits slightly above 1.7 percent,” said Ken H. Johnson, real estate economist at Florida Atlantic University. “The spread between 10-year Treasurys and 30-year mortgage rates is typically 170 to 190 basis points. Splitting the difference in the spread, a reasonable intermediate expectation for 30-year mortgage rates is 3.5 percent. This expectation will lead to an increase in 30-year mortgage rates for the coming week.”
Meanwhile, mortgage applications were down for the fourth week in a row. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 2.2 percent from a week earlier. The purchase index fell 2 percent from the previous week, and the refinance index dropped 3 percent. The refinance share of mortgage activity accounted for 60.6 percent of applications.
“Purchase activity slightly decreased last week but remained significantly higher than the pandemic-driven drop seen a year ago and higher than the same week in March 2019,” said Bob Broeksmit, MBA president and CEO. “Mortgage rates in MBA’s survey have risen nearly half a percentage point since the start of the year, leading to the ongoing slowdown in refinance activity.”