Mortgage rates drop on concerns over economy and the coronavirus

Mortgage rates plummeted this week to a new all-time low, as poor economic news as well as concerns about a resurgence of the coronavirus outweighed news about a second vaccine emerging.

The 30-year fixed rate mortgage fell 12 basis points to an average of 2.72% from 2.84% last week, according to the Freddie Mac Primary Mortgage Market Survey. That is 6 bps lower than the previous record set just two weeks ago. For the same week last year, the 30-year FRM averaged 3.66%.

"Weaker consumer spending data, which accounts for the majority of economic growth, drove mortgage rates to a new record low," Sam Khater, Freddie Mac's chief economist, said in a press release. "While economic growth remains unstable, strong housing demand continues to have a domino effect on many other segments of the economy."

Zillow's rate tracker, which reflects mortgage offers made to consumers on its site, dropped to lows last seen in August, Matthew Speakman, an economist for the company, noted in his weekly commentary issued Wednesday evening.

"Treasury yields, which generally drive mortgage rate movements, initially ticked up following news of another coronavirus vaccine contender, but the upward movement was only a fraction of the surge that followed a similar announcement from the week before," Speakman said. "The uptick was also quickly erased by more sobering statistics regarding the spread of COVID-19, questions about distribution challenges for an approved vaccine, as well as a disappointing reading on U.S. retail sales."

The 10-year Treasury yield peaked on Nov. 9 at 0.975% after Pfizer's announcement about a vaccine, up over 19 bps from its low point on Nov. 6.

After the yield started trending downward later last week, the announcement of a second vaccine from Moderna this past Monday only boosted the 10-year to a daily high of 0.921%, an increase of 5 bps from the low point on Nov. 13. Since then, the yield started to decline again, opening on Thursday at 0.857%.

"The lackluster results of the latter report inserted fresh pessimism into markets regarding the state of economic recovery and drove investors to seek safer assets, pushing mortgage yields downward. Such a muted reaction to the latest vaccine news makes it unlikely that mortgage rates will spike higher anytime soon, absent any concrete decisions regarding vaccine approval and distribution, or a slowdown in the virus' spread," Speakman continued.

The 15-year FRM averaged 2.28%, down 6 bps from last week when it averaged 2.34%. A year ago at this time, the 15-year fixed-rate mortgage averaged 3.15%.

But the largest drop came in the five-year Treasury-indexed hybrid adjustable-rate mortgage, which averaged 2.85% with an average 0.3 point, compared with last week when it averaged 3.11%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.39%.