By Special To The Washington Post · Michele Lerner · BUSINESS, US-GLOBAL-MARKETS
The average for a 30-year fixed-rate mortgage climbed to 2.84% from 2.78% with an average 0.7 point. (A point is a fee buyers pay, usually representing about 1% of the loan, to obtain a better rate.) The 2.84% average rate is well below the 3.75% level a year ago.
The 15-year fixed-rate average reached 2.34%, with an average 0.6 point - up from 2.32%. The five-year adjustable-rate average of 3.11%, with an average 0.4 point, was up from the 2.89% of the previous week. A year ago, the 15-year rate was 3.20% and the five-year was 3.44%.
This week's averages represented the most significant spike in several months.
The average rate on the popular 30-year fixed-rate mortgage tumbled nearly a point from 3.65% in March, reaching new historic lows a dozen times over the past eight months. The decline was driven mainly by a Federal Reserve intervention - buying mortgage-backed securities, or bundled mortgages sold to investors - aimed at stabilizing the housing market amid the economic downturn.
Pfizer's announcement Monday that its coronavirus vaccine in testing is more than 90% effective sent stocks soaring and bonds were sold off. That pushed mortgage rates higher and reversed all of the rate declines of the previous week.
"Bond yields fell precipitously in the immediate wake of the federal election, whose results failed to yield a landslide victory for either party - something that investors seemed to be preparing for. Monday's announcement from pharmaceutical company Pfizer . . . was far less expected, and bond yields jumped on the news," Zillow economist Matthew Speakman said in an email.
"Mortgage rates followed suit, rising firmly in recent days," Speakman added. "The movement was a stark reminder of the influence the coronavirus - and our ability to contain it - has on the direction of financial markets going forward. This budding optimism regarding a treatment for the virus is likely to continue to nudge mortgage rates higher in the near term, barring any setbacks."
The yield on 10-year Treasury notes, and a variety of political and economic issues are other factors that determine the trajectory of mortgage rates.
"Looking ahead, there are competing forces that will keep rates in an uneven pattern," Michael Borodinsky, vice president of Caliber Home Loans in Edison, N.J., said in an email. "The current higher rates of covid-19 infections could force local economies to shut down, which would in turn support lower mortgage rates. The longer-term hopes for a successful vaccine will boost the economy and push rates marginally higher."
Borodinsky added that with the Fed's plan to stick with its purchase of mortgage-backed securities until at least 2023, "we can expect mortgage rates to remain near historically low levels for the foreseeable future."
Freddie Mac's averages come from its Primary Mortgage Market Survey - a questionnaire sent every week to 80 lenders nationwide to capture the rates they're offering buyers. The survey is confined to borrowers with excellent credit seeking conventional mortgages making a 20% down payment.
"Mortgage rates jumped this week as a result of positive news about a COVID-19 vaccine," Sam Khater, Freddie Mac's chief economist, said in a statement. "Despite this rise, mortgage rates remain about a percentage point below a year ago and the low rate environment is supportive of both purchase and refinance demand. Heading into late fall, the housing market continues to grow and buttress the economy."
Lawrence Yun, chief economist of the National Association of Realtors, said he thinks that given the vaccine news, "we've seen the bottom for mortgage rates. But we won't see any notable increases, either." The existence of the vaccine means that the economy will grow in 2021 and investors will be less likely to invest in safe assets such as mortgage bonds, Yun said.
For buyers, the difference in monthly payment on a $400,000 30-year fixed-rate loan at this week's rate of 2.84% compared with last year at this time, when the rate was 3.75%, is about $200 per month. However, Yun said, fast-rising home prices negate some of the impact of low-interest rates.
Meanwhile, the high demand from buyers, driven by the low interest rates, is squeezing the supply of homes for sale. Thus, according to the Mortgage Bankers Association, the overall number of borrowers seeking mortgages fell slightly.
The market composite index, which measures the volume of both application types, dropped 0.5% from last week. The purchase index decreased 5% from last week but rose 16% from a year ago. The refinance index rose 1% from a week earlier and soared 67% from a year earlier.
"Homebuyer demand remains strong in much of the country, but purchase applications have decreased in recent weeks," Bob Broeksmit, president and CEO of the association, said in a statement. "Supply and affordability constraints - especially at the lower end of the market - are limiting choices for some prospective buyers."