Mortgage rate falls again, but a reversal may be in store

The average 30-year fixed-rate mortgage fell for a third-straight week, hitting its lowest mark since mid February, but remarks from Wednesday’s Federal Reserve meeting immediately led rates to spike and could portend a reversal of the trend.

The 30-year average fell to 2.93% for the weekly period ending June 17, according to Freddie Mac’s Primary Mortgage Markets Survey, down three basis points from 2.96% the previous week. The last time the average was lower was four months ago, when it came in at 2.81% for the period ending February 18. In the same week a year ago, the 30-year fixed-rate mortgage averaged 3.13%.

But developments on Wednesday after a Fed committee meeting immediately caused Treasury yields and corresponding mortgage rates to jump.

The Federal Open Market Committee indicated it was moving closer to tapering its bond purchasing program introduced during the pandemic to prop up the economy during the Covid-19 pandemic. The current pace of the economic recovery also led the central bank to predict two interest-rate hikes in 2023. The federal rate now sits near zero.

The announcements came after Chair Jerome Powell had stated repeatedly over several months that the Fed had no plans for raising rates despite signs of a heating economy seen in quickly rising inflation and more working Americans, though jobs numbers have progressed slower than forecasted.

“More important than any forecast is the fact that whenever liftoff comes, policy will remain highly accommodative. Reaching the conditions for liftoff will mainly signal that the recovery is strong and no longer requires holding rates near zero,” Powell said.

Wednesday’s increases were a harbinger, according to Zillow economist Matthew Speakman, who says “more upward movements are likely on the way in the coming days.”

“The Federal Reserve’s insistence that recent inflation figures were transitory and that any changes to monetary policy wouldn’t be necessary until the economy showed far more substantial progress has kept rates at bay for months. And in recent weeks, it increasingly seemed that it would take a shift in this stance for rates to head meaningfully upward,” he said in a statement.

Weekly average mortgage rates seen in Freddie Mac’s surveys have remained at 3% or below since mid April. The highest average recorded so far in 2021 was 3.18% for the period ending April 1.

Despite the spate of low rates this year, mortgage activity has been tempered by steep home prices due to limited availability, which has capped demand. Home prices will remain elevated, according to Sam Khater, Freddie Mac’s chief economist.

“With inventory tight, the slowdown in demand has yet to impact prices, meaning the summer will likely remain a strong seller’s market,” said Sam Khater, Freddie Mac’s chief economist.

While the 30-year rate declined for the week, the 15-year fixed-rate mortgage average inched up to 2.24% from 2.23%. In the same week of 2020, the rate was at 2.58%.

The 5-year Treasury-indexed adjustable-rate mortgage average, or ARM, came in three basis points lower week over week, falling to 2.52% from 2.55%. One year ago, the 5-year ARM average stood at 3.09%