High end of purchase market benefiting most from lower mortgage rates

The decline in average mortgage rates since the start of the year is driving higher purchase demand, especially at the higher end of the market, according to Freddie Mac.

"Mortgage rates fell for the fourth consecutive week and continued the medium-term trend of lower rates since late 2018," Sam Khater, Freddie Mac's chief economist, said in a press release. "The drop in mortgage rates is causing purchase demand to rise and the mix of demand is skewing to the higher end as more affluent consumers are typically more responsive to declines in rates."

In recent forecasts, industry economists commented that even with low rates, a significant uptick in refinance activity is unlikely.

The 30-year fixed-rate mortgage averaged 4.06% for the week ending May 23, down from last week when it averaged 4.07%. A year ago at this time, the 30-year FRM averaged 4.66%.

Rates for the 30-year loan had their most recent peak during the week of April 25, when they reached 4.2%. Since then, global trade tensions contributed to a decline in the 10-year Treasury yield, a benchmark for long-term mortgage rates.

"For the third week in a row, a shortage of market-moving economic data releases kept the market’s focus on headlines emerging from the trade negotiations," Matthew Speakman, an economic analyst at Zillow, said when that company released its rate tracker. "The one event with the potential to drastically influence rates — the reading of the minutes from last month's Federal Open Market Committee meeting — offered little in the way of new forward guidance, keeping bond yields, which dictate mortgage rates, at bay."

The 15-year fixed-rate mortgage this week averaged 3.51%, down from last week when it averaged 3.53%. A year ago at this time, the 15-year fixed-rate mortgage averaged 4.15%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.68% with an average 0.4 point, up from last week when it averaged 3.66%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.87%.

Going forward, mortgage rates may soon start to rise again, Speakman said.

"While substantial uncertainty remains, the pace of provocative headlines has subsided in recent days, which could result in some upward pressure on rates if the trend holds. A sharp rebound appears unlikely, but so long as the trade tensions don't escalate and upcoming economic releases offer few surprises, modest rate increases could be on the horizon in the immediate term," he explained.