Mortgage rates remain low but Fed news signals trend reversal

Mortgage rates inched up only slightly in the past week, as continued investment in the U.S. Treasuries market tempered economic concerns.

The 30-year fixed-rate mortgage rose to 2.88% from 2.86% the previous week, according to the latest Freddie Mac Primary Mortgage Market Survey, which measured activity for the period from Sept. 17 to 23. The 30-year rate has not risen above 3% in three months.

“The slowdown in economic growth around the world has caused a flight to the quality of the U.S. financial markets,” said Sam Khater, Freddie Mac’s chief economist, in a press release. “This has led to a rise in foreign-investor purchases of U.S. Treasuries, causing mortgage rates to remain in place, despite the increasing dispersion of inflation across different consumer goods and services.”

But the central bank suggested changes were on the horizon during this week’s highly anticipated meeting of the Federal Open Market Committee, indicating a taper of its asset purchases could be announced as soon as its meeting in November.

“The pending taper and change to the monetary policy outlook will likely contribute to a modest increase in mortgage rates over the medium term,” said Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association, in an issued statement. The Federal Reserve began its bond-buying program in early 2020 to counteract the economic shock caused by the coronavirus pandemic, currently acquiring $120 billion worth of Treasuries and mortgage-backed securities each month.

“To paraphrase Chekov, if at the September meeting the Fed lays out a tapering plan, they must use it in November,” Fratantoni said. “There would need to be a significant negative surprise in the incoming data for them to delay.”

But the short-term effect is likely minimal, according to Matthew Speakman, Zillow economist. This week’s announcement was expected by many and largely already factored in, with bond yields and corresponding mortgage rates barely moving after the Fed’s statement.

“While more meaningful changes may be on the way in the coming days as investors digest the details of the Fed’s announcement, it appears as if the risk of more substantial shifts in rates are behind us — for now,” Speakman noted in a blog post.

The 15-year fixed-rate mortgage showed a similar slight uptick as the 30-year in the seven-day period, inching to an average of 2.15%, up three basis points from the previous week’s 2.12%. One year ago, the 15-year average came in at 2.4%.

The 5-year Treasury-indexed adjustable-rate mortgage dipped eight basis points to 2.43% from 2.51% week over week. In the same week of 2020, the 5-year ARM posted a 2.9% average.

For borrowers, current rates and market conditions offer a brief window that may benefit buyers.

“On the housing front, home buyers continue to snap up available inventory, which has improved modestly, and home-price growth is moderating,” Khater said.

“However, the next few months will be choppy as several home builders are signaling that they are going to deliver less supply amid labor and materials shortages,” he added.