Mortgage rates dip slightly to 2.88%

The average 30-year fixed-rate mortgage fell two basis points from the week prior to 2.88%, according to mortgage rates data released Thursday by Freddie Mac‘s PMMS.

According to Sam Khater, Freddie Mac’s chief economist, the decline provides modest relief to those who are looking to buy homes in a tough market, with scant inventory and mounting home price appreciation.

“The summer swoon in mortgage rates continues as the 30-year fixed-rate mortgage fell for the third consecutive week,” Khater said. “Since their peak at 3.18% in April, mortgage rates have declined by thirty basis points.”

Mortgage rates have been hovering around 3% for several months. Economists and investors are closely watching for any indication that the Federal Reserve may change its position on the tapering of mortgage backed securities and bond purchases.

During testimony to the U.S. House of Representatives Financial Services Committee on Wednesday, Federal Reserve Chair Jerome Powell pushed back at Republican lawmakers’ concerns about volatility in the prices of some goods, including lumber. High inflation, Powell said, is limited to “a small group of goods and services directly tied to the reopening,” and the U.S. central bank’s bond buying will continue until there is substantial progress on jobs.

Tapering the U.S. central bank’s $120 billion in monthly bond purchases, is “still a ways off,” Powell said.

“If we continue to make progress on our goals we’ll reduce those purchases,” he said. Powell is scheduled to testify in front of the U.S. Senate Banking Committee Thursday morning.

Since March 2020, the Fed’s asset purchases have been split between $80 billion of U.S. Treasury bonds and $40 billion of mortgage backed securities each month, keeping the cost of long-term borrowing low. 

Still, the industry is already anticipating rates rising to a more standard level expected in today’s market. A year ago at this time, the 30-year fixed-rate mortgage averaged 2.98%.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) reported 64% of respondents said it’s a bad time to buy a home, up from 56% last month. Seventy-seven percent of respondents said it’s a good time to sell, up from 67% last month. Year-over-year, the overall index is up 3.2 points.

The low cost of borrowing — despite soaring home prices and a lack of inventory — has also  coincided with a spike in mortgage applications. Mortgage applications jumped 16% for the week ending July 9, 2021, according to the latest report from the Mortgage Bankers Association.

Declining mortgage rates are spurring borrowers to refinance, said Joel Kan, MBA associate vice president of economic and industry forecasting.

“Treasury yields have trended lower over the past month as investors remained concerned about the COVID-19 variant and slowing economic growth,” Kan said. “There also may have been a delayed spillover of applications from the previous week, when rates also decreased but there was not much of response in terms of refinance applications.”

Those lower rates may be helping some homebuyers close on their purchases, especially first-time homebuyers, he noted.

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