The Freddie Mac fixed rate for a 30-year loan dropped for the fourth consecutive week, with a noticeable 10 basis point slide to 2.78%. Investors reacted to the mild chaos spurred by Monday’s plunge in equity markets, due to concerns about resurgent Delta-variant COVID cases slamming the brakes on the economic recovery, and the Federal Reserve’s lukewarm approach to rising inflation. Financial markets experienced wild swings this week, with a steep drop on Monday followed by a rally in the ensuing days, which shows that we are in a transitional period and investors are seeking an elusive sense of certainty. In brief, we expect to see volatility in interest rates until there is more clarity from the Fed and less danger from COVID to business activity.
Mortgage rates have been on a downward trend since November of 2018, when they were at a 5-year high of 4.94%. They reached a record-low of 2.65% in January of 2021, driven by massive monetary stimulus and investor concern about the economic recovery. Rates rebounded from their nadir, to 3.18% during the first week of April, as investors welcomed the faster-than-expected vaccination rates and declining COVID cases. However, even with the ending of most pandemic restrictions and wider business re-openings, markets remain cautious about the outlook, especially in light of the fall and winter health concerns.
The Federal Reserve’s continued monetary easing, and especially the bank’s monthly purchases of mortgage-backed securities, is keeping a strong downward pressure on rates. In addition, investors are mindful of an extended inflationary period’s impact on returns The trajectory of the 15-year rate has mirrored these concerns. The rate normally hovers above that for adjustable rate mortgages. However, since January 2019, the rate has been steadily below the 5/1 ARM.
Even with mortgage rates dropping, purchase and refinance applications declined this week. Closing costs and Fannie/Freddie’s “adverse markets refi fee” have made refinancing less attractive for homeowners. However, the recent announcement that the fee will be eliminated on August 1, might help with transactions over the next few weeks. Meanwhile, buyers remain boxed-in by high prices, tight inventory and escalating inflation, which is taking a bigger bite out of their monthly paychecks. Americans are spending more on everything from food and utilities, to new and used cars and trucks, and from airfare and hotels to restaurant meals, leaving less available funds for housing. At today’s rate, the monthly mortgage payment for a median-priced home is $109 higher than the same time in 2020.