U.S. downgrade caused rates to rise, Freddie Mac says

Mortgage rates zoomed back up this week close to the 7% mark but a pair of observers are split on whether the actions by Fitch Ratings were responsible for the change.

This was also the full survey period following the Federal Open Market Committee's July meeting, in which it raised short-term rates 25 basis points.

"The combination of upbeat economic data and the U.S. government credit rating downgrade caused mortgage rates to rise this week," said Sam Khater, Freddie Mac's chief economist, in a press release. "Despite higher rates and lower purchase demand, home prices have increased due to very low unsold inventory."

Taking the dissenting view was Jeff Tucker, the senior economist for Zillow.

"There's no good evidence linking the uptick in rates to the downgrade of the U.S. Treasury's credit rating," he said in a comment issued on Wednesday.

Tucker suggested that signs of strong economic growth, which offset any good news regarding declining inflation, caused the rise in rates.

"A stronger-than-expected GDP reading and a robust read on personal spending in June were among the key data series that helped press bond yields, and the mortgage rates that tend to follow them, higher late last week," Tucker said. "Rates have remained elevated in the days since, in part because private payrolls data again exceeded expectations in July."

"To whatever extent the credit downgrade is adding to investors' assessment of the riskiness of U.S. debt — which raises yields — it seems to also be driving a 'flight to safety,' pushing investors back into the arms of the U.S. Treasury," he added.

Over the past seven days the 10-year Treasury yield has gone from an opening price of 3.86% on July 27 to 4.18% around noon time on Aug. 3. And that was reflected in mortgage rates.

Freddie Mac's Primary Mortgage Market Survey reported a 9 basis point week-to-week rise in the 30-year fixed rate loan to 6.9% on Aug. 3 from 6.81% on July 27. For the same week last year, this rate was at 4.99%.

The 15-year FRM was 14 basis points higher, moving up to 6.25% from 6.11% one week ago and 4.26% the prior year.

Zillow's rate tracker was at 7.05% as of Thursday morning, up from 7% on Wednesday and 43 basis points higher than last week's average of 6.62%.

Freddie Mac uses data from submissions to Loan Product Advisor to calculate the PMMS rates, while Zillow's from lenders using its site.

"While rates rose this week, the path forward is, as always, unclear, particularly with a key reading for the U.S. labor market set to be released on Friday," Tucker said. "A softer-than-expected jobs report would place downward pressure on mortgage rates as the month of August begins."