Mortgage rates sink as coronavirus concerns flare up

The average interest rate for a home loan fell slightly in the latest week due to renewed coronavirus-related concerns.

The rate for a 30-year mortgage fell to 3.13% from 3.18% the previous week and was down from 3.3% a year ago, according to Freddie Mac.

The shift ended a long run of higher rates that have depressed loan application activity, and, at least temporarily, it creates a new refinancing incentive for some borrowers.

“After moving up for seven consecutive weeks, mortgage rates have dropped due to the recent, modest decline of U.S. Treasury yields,” Freddie Mac’s Chief Economist Sam Khater said in a press release.

The 10-year yield drifted lower this week because of concern about coronavirus infections outpacing vaccination rates, Zillow Economist Matthew Speakman said in a separate press release.

“With coronavirus cases beginning to rise again in most U.S. states and many countries around the world, investors have a renewed reason for caution, which tends to push bond yields, and mortgage rates, downward,” said Speakman.

Whether the downward trend persists remains to be seen. The rate-indicative 10-year Treasury yield wavered during the week, rising as high as 1.67% on Wednesday in response to Federal Open Market Committee meeting minutes indicating that short-term rates will remain low.

However, that yield started the day closer to 1.63% on Thursday morning, following the release of surprisingly high jobless claims. It was drifting slightly higher at deadline.

Although borrowers got a little bit of a break on 30-year loans in the past week,their rate hasn’t fallen back below 3%, and that’s psychologically important for borrowers who saw rates at that level previously. Those borrowers have been looking for a sub-3% rate to re-emerge before they act.

Borrowers in this category have begun looking at hybrid adjustable-rate mortgage products as an alternative, and there’s been a small pickup in those applications as a result.

The average five-year Treasury-indexed hybrid rate actually rose a little to 2.92% from 2.84% the previous week, but it’s down from 3.4% a year ago

“There’s been a push with adjustable-rate mortgages being offered at more competitive rates,” said Eli Sklar, a senior loan consultant at loanDepot. “I do think where people are planning on moving in the next 7-10 years should consider that as one of their options.”