The average 30-year fixed-rate mortgage was flat at 2.87% for the week ending in Sept. 2, according to mortgage rates data released Thursday by Freddie Mac‘s PMMS.
The week prior, mortgage rates also held steady at 2.87%. This week’s near constant mortgage rates tracked with the 10-year Treasury yield, which has hovered around 1.30 for the past week. The 10-year Treasury yield for Sept. 1 was 1.31.
According to Sam Khater, chief economist at Freddie Mac, mortgage rates have held steady as economic growth and rising prices in goods have cooled. He predicted that those factors will also moderate home-price growth.
“Economic growth and the acceleration in inflation have moderated in the last month, giving the markets comfort and leading to a stabilization in mortgage rates,” said Khater. “Heading into the fall, home purchase demand is stable, home sales remain firm and above pre-pandemic levels, and inventory of unsold homes is tight but improving modestly. These factors will allow for home price pressures to ease over the remainder of the year.”
A year ago at this time, the 30-year fixed-rate mortgage averaged 2.93%. The 15-year fixed-rate mortgage rose slightly from the week prior, again, at 2.18%.
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Mortgage rates have stayed stubbornly low for most of 2021, defying expectations they would rise significantly. The low cost of financing is supported by the Federal Reserve’s continued, aggressive monthly asset purchases.
Last week, in a virtual address at the annual Jackson Hole, Wyoming economic symposium, Federal Reserve Chair Jerome Powell indicated that the central bank would continue its asset purchases at the current pace until “substantial further progress” is made toward employment and price stability goals.
“My view is that the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment,” Powell said. “We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2% inflation on a sustainable basis.”
The central bank previously signaled it would begin to taper its $120 billion in monthly purchases of U.S. Treasury bonds and mortgage backed securities by November.
Borrowers are still looking to take advantage of the low-cost of financing, although the market is beset by steeply rising home prices and insufficient supply.
Mortgage applications fell 2.4% for the week ending Aug. 27, with a marked drop in refinance applications, according to the latest report from the Mortgage Bankers Association.
On an unadjusted basis, the weekly mortgage application survey by the trade organization decreased 3% compared to the prior week. The refinance index fell 4% but was still higher than it was a year ago. The seasonally adjusted purchase index dropped 2% compared to the previous week and was 16% lower than it was a year ago.
“Despite low rates, refinance applications declined, with some borrowers still waiting for rates to drop even lower. Recent uncertainty around the economy and pandemic have kept rates low over the past month, which is why the refinance index has oscillated around these levels,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Even with a slight increase, purchase activity hit its highest level since early July, as applications for conventional and government loans increased.”
Kan noted that the higher price tiers of the housing market saw more purchase activity. The median purchase loan reached $396,500 for the prior week, the highest average in more than a month.
“According to FHFA, June’s year-over-year increase in home prices was 18.8%, while the second quarter saw a 17.4% increase overall,” Kan said in a statement. “Both measures set new records, as housing demand continued to outpace the inventory of homes for sale.”
The refinance share of mortgage activity fell to 66.8% from 67.3% the week prior. According to the MBA, the adjustable-rate mortgage rose slightly to 3.2% of total applications. The Federal Housing Administration share of total mortgage applications rose to 11.2% from 11.0% the prior week.
While borrowers decide whether to refinance their mortgages and take advantage of the low-rate environment, the purchase market grapples with the lack of inventory. The Biden administration this week announced a series of actions at federal agencies to increase the supply of affordable housing. The actions were incremental changes to existing programs.
That lack of industry is propelling buyers to pay any price for available homes. Home-price growth in the U.S. reached a record high in June, up 18.6% year-over-year, according to the S&P CoreLogic Case-Shiller Index.
It was the most annual growth the market has seen since in the 34 years the index has tracked home prices, surpassing the record set the month prior.
“While the housing market feels like it has legs that never get tired, inventory and affordability constraints are still expected to put a damper on price growth,” said Selma Hepp, CoreLogic deputy chief economist. “Some early data suggests that the buyer frenzy experienced this spring is tapering, though many buyers still remain in the market. Nevertheless, less competition and more for-sale homes suggest we may be seeing the peak of home price acceleration. Going forward, home price growth may ease off but stay in the double digits through year-end.”
The Case-Shiller 10-city home price growth index rose 18.5% over the 12 months that ended in June, compared with a 16.6% increase in May. The 20-city index rose 19.1%, following an annual gain of 17.1% in May.
“We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.
While the effects of the Covid-19 pandemic are no doubt driving buyers to less-populous areas, Lazzara questioned whether the temporary dislocation could have now shifted to a permanent change in the way people live. He cautioned, however, that more time and data are needed before fully answering that question.
“This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years,” Lazzara said. “Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing.”
