Mortgage rates tanked this week, but that's likely just a pause before an expected 30-to-40 basis point rise by year-end, Freddie Mac said.
Its latest Primary Mortgage Market Survey has the 30-year fixed rate mortgage at 3.04%, down from 3.13%
Increased COVID-19 cases and compounded by issues with the Johnson & Johnson vaccine, both in terms of production and with possible side effects, were the main factors in the rate drop said Matthew Speakman, a Zillow economist, in a note issued Wednesday evening.
But this is just a likely exception before rates gradually grow over the rest of 2021.
Both the recent Producer Price Index and Consumer Price Index showed stronger-than-expected upward price pressures beginning to materialize, Speakman said.
That normally results in higher bond yields, which in turn causes mortgage rates to rise, but the COVID news "introduced fresh uncertainty to the market and placed renewed downward pressure on rates," he said.
"The economy is improving on the demand side and on the supply side, a variety of goods and materials remain scarce," added Freddie Mac Chief Economist Sam Khater in a press release. "As a result of this imbalance, pricing pressures are building and causing inflation to rise."
Freddie Mac's latest quarterly forecast, released on Wednesday, has the 30-year FRM increasing to 3.4% in the fourth quarter of this year and 3.8% by the end of 2022.
The forecast calls for $3.48 trillion in originations this year, down from $4.04 trillion in 2020. For 2022, Freddie Mac predicts $2.39 trillion.
Purchase volume is expected to increase to $1.66 trillion this year from $1.39 trillion in 2020, while refinancings are expected to drop to $1.83 trillion from $2.65 trillion.
Besides higher rates, "other important obstacles to consider include
The 15-year FRM averaged 2.35%, down from 2.42% one week prior and 2.8% one year ago. This week, the 5-year Treasury-inded adjustable rate mortgage averaged 2.8%, down from 2.92% a week ago, and 3.34% for the same week in 2020.
