Rates continued to drift down as markets concur with transitory inflation measures
The average 30-year fixed-rate mortgage fell three basis points from the week prior to 2.93%, according to data released Thursday by Freddie Mac‘s PMMS. This marks the first time in over two months mortgage rates have fluctuated outside a five basis point range above or below 3%.
“Mortgage rates continued to drift down as markets concur with the view that inflation increases are temporary,” said Sam Khater, Freddie Mac’s Chief Economist.
Fannie Mae‘s economic and strategic group mirrored a similar outlook on inflation’s transitory effects on both mortgage rates and the housing market. Though uncertainties over consumer behaviors related to reopening and COVID-19 developments remain, the group believes temporary factors are largely responsible for current strong inflation.
U.S. inflation jumped from 1.68% in February all the way up above 5% by June. If the fed were to tighten policy, Fannie Mae’s ESR Group expects this to drag on upcoming housing market growth and even stifle home sales, house prices, construction and mortgage originations.
“While mortgage rates are low, purchase demand has weakened over the last couple of months, primarily due to affordability constraints stemming from high home prices,” said Khater. “With inventory tight, the slowdown in demand has yet to impact prices, meaning the summer will likely remain a strong seller’s market.”
Where borrowers may lose out in an inflated price on their future home, they may save on continued low mortgage rates. Fannie Mae’s economic group said its outlook on mortgage rates will remain the same: 30-year fixed contract rate at 3% in 2021 and 3.3% for 2022.
The Mortgage Bankers Association on Wednesday noted that mortgage applications increased 4.2 percent from the prior week, with refinancing applications up 6% and purchase applications rising 2%.
“The jump in refinances was the result of the 30-year fixed rate falling for the third straight week to 3.11%, which is the lowest since early May,” said Joel Kan, the MBA’s vice president of economic and industry forecasting. “U.S. Treasury yields have slid because of the uncertainty in the financial markets regarding inflation, and how the Federal Reserve may act over the next few months.”