Mortgage rates continue to languish as summer winds down

For the past month, mortgage rates have been treading water, unperturbed by the pandemic, economic data or world events.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average was unchanged at 2.87% with an average 0.6 point. (Points are fees paid to a lender equal to 1% of the loan amount. They are in addition to the interest rate.) It was 2.93% a year ago. Since the 30-year fixed average jumped from 2.77% to 2.87% in early August, it hasn't budged. It has essentially held steady for the past four weeks.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The 15-year fixed-rate average ticked up to 2.18% with an average 0.6 point. It was 2.17% a week ago and 2.42% a year ago. The five-year adjustable rate average edged up to 2.43% with an average 0.3 point. It was 2.42% a week ago and 2.93% a year ago.

"Mortgage rates reflected investor uncertainty over dueling economic indicators," said George Ratiu, manager of economic research at Realtor.com. "The 10-year Treasury dropped early in the week as a result of consumer confidence hitting a six-month low, disappointing private payroll gains and cooling pending home sales. However, the Institute of Supply Management's figures showed that manufacturing continued to advance in July.

“In addition, with rising inflation pressures leading regional Federal Reserve voices, like Dallas's Robert Kaplan, to push for a September asset tapering announcement, the central bank's continued stance that strong price gains are transitory is fueling conflicting views for markets. I expect rates to float near the 3% mark until the Fed takes a clear stance on asset purchases. But with tapering on the menu, I see rates making a jump toward the end of 2021."

Federal Reserve Chair Jerome H. Powell made a highly anticipated speech last week that ended up having little effect on mortgage rates. In the speech, Powell reiterated what he had said previously about reducing or tapering the Fed's $120 billion bond-buying program that has held down mortgage rates.

"We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals," Powell said. "My view is that the 'substantial further progress' test has been met for inflation. There has also been clear progress toward maximum employment."

But he added that while it may be "appropriate to start reducing the pace of asset purchases this year," the Fed continues to monitor how the delta variant is impacting the economy and that it is not ready to make plans to withdraw its support.

Some experts are predicting the Fed will announce its plans to taper its bond-buying program at its meeting later this month. Such an announcement has the potential to cause a sudden spike in mortgage rates.

Of course, not that long ago, it seemed probable that Powell would announce those plans at the symposium in Jackson Hole, Wyoming, last month. The wild card is the delta variant and its persistent hold on the economy.

"Mortgage rates might drop on a particular day or week, but the longer-range trend is upward as the economy recovers from the covid-19 recession and the Federal Reserve prepares to restrict the flow of money into the banking system," said Holden Lewis, home and mortgage specialist at NerdWallet.

Bankrate.com, which puts out a weekly mortgage rate trend index, found two-thirds of the experts it surveyed say rates will remain about the same in the coming week.

"Rates should hold steady after Fed chairman Powell gave no immediate timeline as to when they will begin to slow the pace of asset purchases," said Gordon Miller, owner of Miller Lending Group. "Add continued concern with the covid variant and you should see rates hold at or near these levels over the course of the next month or two."

Meanwhile, mortgage applications tailed off last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 2.4% from a week earlier. The refinance index dropped 4%, while the purchase index inched up 1%. The refinance share of mortgage activity accounted for 66.8% of applications.

"While overall applications declined slightly last week, purchase application activity hit its highest level since early July," said Bob Broeksmit, MBA president and CEO. "The housing market remains strong as demand continues to outpace the inventory of homes for sale, but purchase mortgage applications for higher loan amounts continue to grow at a faster pace than applications for smaller balance loans."