As featured in The Washington Post
Just months ago, low mortgage rates seemed a thing of the past. Most experts were predicting rates would rise throughout the year following the Federal Reserve’s rate hike in December.
But home loan rates didn’t increase. In fact, they’ve sank to near-record lows as the global economy lurches from one crisis to the next. Now low rates appear here to stay.
Earlier this week, Freddie Mac revised its outlook for mortgage rates. The government-backed mortgage-backer now predicts the 30-year rate won’t move above 3.6 percent this year and will be about 4 percent in 2017. Previously, it had said rates would reach 4.5 percent by the year’s end.
“With the U.K.’s decision to exit from the European Union, global risks increased substantially leading us to revise our views for the remainder of 2016 and all of 2017,” Sean Becketti, Freddie Mac chief economist, said in a statement. “Nonetheless, the turbulence abroad should continue to create demand for U.S. Treasuries and keep mortgage rates near historic lows; thereby, allowing home sales to have their best year in a decade, along with a boost in refinance activity.”
Bankrate.com, which puts out a weekly mortgage rate trend index, found that nearly three-quarters of the experts it surveyed think rates will remain unchanged in the coming week.
Even as the yield on the 10-year Treasury spiked this week, posting its largest daily gain since May, mortgage rates held steady, according to the latest data released Thursday by Freddie Mac. Home loan rates tend to follow the movement of long-term bonds. When yields move higher, rates tend to rise.
But this week, the 30-year fixed-rate average ticked up only slightly to 3.42 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.41 percent a week ago and 4.09 percent a year ago.
The 15-year fixed-rate average dropped to 2.72 percent with an average 0.5 point. It was 2.74 percent a week ago and 3.25 percent a year ago.
The five-year adjustable rate average climbed to 2.76 percent with an average 0.4 point. It was 2.68 percent a week ago and 2.96 percent a year ago.
“We describe the last few weeks as ‘A Tale of Two Rates,’ ” Becketti said in a statement. “Immediately following the Brexit vote, U.S. Treasury yields plummeted to all-time lows. This week, markets stabilized and the 10-year Treasury yield rebounded sharply. In contrast, the 30-year mortgage rate declined after the Brexit vote, but only by half as much as the 10-year Treasury yield. This week, the 30-year fixed rate barely budged, rising just one basis point to 3.42 percent. This pattern suggests that mortgage rates are likely to remain low throughout the summer.”
Fueled by a continued surge in refinances, mortgage applications increased again this week, according to the latest data from the Mortgage Bankers Association.
The market composite index — a measure of total loan application volume — rose 7.2 percent from the previous week. The refinance index climbed 11 percent, while the purchase index was unchanged.
The refinance share of mortgage activity accounted for 64 percent of all applications, its highest level in five months.
“For the second week in a row, jumbo rates exceeded conforming rates on 30-year fixed-rate loans, reversing the pattern that has been in place for most of the past 3 years,” said Mike Fratantoni, MBA’s chief economist. “One explanation for this new trend is that banks may be somewhat more cautious in putting long-term, fixed-rate assets on their balance sheets at these very low rate levels. Additionally, FHA’s share of the market is declining again to its lowest market share since January 2015. Two factors likely contributing to this are that there has been an increase in conventional mortgage products designed for first-time homebuyers and also that some lenders remain cautious regarding the FHA program given the potential liability exposure.”
Although many people may be tempted by the low rates, the reality is obtaining a loan was more challenging last month. According to the MBA’s latest mortgage credit availability index, mortgage credit availability decreased in June. The MCAI decreased 1.3 percent to 119.8 last month. A decline in the MCAI indicates that lending standards are tightening.
“Credit availability decreased over the month driven primarily by a decrease in availability of conventional conforming loan offerings,” said Lynn Fisher, MBA’s vice president of research and economics. “In particular, a number of investors discontinued their conventional high balance 7 year adjustable rate loan programs (agency jumbo ARM) while leaving their [five]-year and 10-year ARM programs unchanged.”