After hitting the highest point in seven years this April, Mortgage rates are finally beginning to settle in for the summer, boosting mortgage applications for two consecutive weeks.
Steady Rates in Future
Latest reports by Freddie Mac released last Thursday show that there has been a 4.53 per cent increase in 30-year fixed mortgage rate, boosting the lenders’ fee by 0.4 points on loan amounts. Rates ticked up for the first time in three weeks. The 30-year fixed rate was down at 4.03 per cent last year in July, increasing to 4.52 per cent three weeks ago.
The 15-year fixed rate average, which was 3.29 per cent 12 months ago, has increased to 4.02 per cent this week by a 0.4 point average. Only a week ago, the fixed rate average was down at 3.99 per cent. The adjustable five-year rate has also jumped from 3.74 per cent last week to 3.86 per cent by a 0.3 point average. A year ago, the adjustable rate was down at 3.28 per cent.
Furthermore, mortgage rates have stayed steady since April with the 30-year fixed rate varying from 4.55 per cent to 4.66 per cent. With the rates fluctuating between the two parameters for the past few weeks, it seems like the trend has settled in for the summer.
Chief economist at Freddie Mac, Sam Khater, says that as investors are adopting a conservative approach in the tense global trade climate, the 10-year treasury yield is expected to remain within a narrow range to keep borrowing costs low. This is certainly a positive move to help homebuyers apply for a mortgage loan at attractive rates before the summer’s end.
Bankrate.com, a leader in providing weekly updates on mortgage rate trends, surveyed several mortgage experts, half of whom predicted that rates will remain steady over the coming weeks. CEO of Arcus Lending, Shashank Shekhar, is one of the many experts who believes that the trend will hold steady over the summer.
Shekhar explains that event though the rates have fluctuated frequently over the past few weeks the 30-year fixed-rate range hasn’t changed much since April, which is quite opposite to the rapidly increasing rates over the first three months of 2018. One of the factors which has prevented mortgage rates from increasing in the past three months is the competition between lenders to provide the most attractive loan terms to potential homebuyers.
Fears of inflation and increasing June Producer Price Index, which soared to its highest level since 2011 at 3.4 per cent, generally push the mortgage rates up, but with the current geopolitical conditions and stock market cool-down, lenders are struggling to keep the rates low in order to increase the volume of loan applications.
Low Refinance Activity
The most recent reports from Mortgage Bankers Association show that the steady mortgage rates have had a positive effect on the market composite index – a measure of loan applications including mortgage – which rose by 2.5 per cent last week from a week earlier. The purchase index also increased by 7 per cent whereas the refinance index decreased by 4 per cent.
David Stevens, the President of MBA, said that mortgage applications accounted for only 34.8 per cent of the refinance index, which is the lowest it has been since the Great Recession of 2008. The refinance activity has been negatively impacted by the rising interest rates which are preventing new homebuyers from entering the real estate market.
In comparison to the refinance volume, which has dipped to its lowest level since the year 2000, the purchase market has showed strong performance due to high employment rate and strengthening U.S. economy.
The mortgage credit availability index (MCAI) for MBA increased by 0.2 per cent to 181 in June which shows that banks are loosening their lending standards due to fierce competition to acquire prime borrowers.
However, the rise in lenders’ MCAI was almost completely offset by Government MCAI for state-offered loan programs. The tightened credit for government loans has been driven mainly by the Veterans Administration’s policy actions to minimize churning in its Interest Rate Reduction Refinance Loan program.