Mortgage rates remain flat, while investors await taper announcement

Mortgage rates showed little movement for the week, as concerns over increasing coronavirus numbers tempered promising economic news, according to the latest data from Freddie Mac.

The 30-year fixed-rate mortgage average inched up one basis point to 2.87% for the weekly period ending August 26. The rate came in at 2.86% a week earlier and 2.91% from the same period in 2020.

“The tug-of-war between the economic recovery and rising COVID-19 cases has left mortgage rates moving sideways over the last few weeks,” said Sam Khater, Freddie Mac’s chief economist.

This year’s rising inflation resulted in speculation about when interest rates might follow suit in hedging against a potentially overheating economy. A better-than-expected July jobs report also pointed to signs of a strong recovery from the pandemic-induced recession of 2020. But Treasury yields this summer — and corresponding mortgage rates — have maintained no upward momentum, as investors continue to proceed cautiously. The average 30-year rate remained below 3% for the past nine weeks and only risen above that level once since mid April.

Recent spikes in coronavirus cases have also dampened much of the optimism from earlier this year, and will continue to apply downward pressure, according to Zillow economist Matthew Speakman.

But changes to monetary policy that would lead to increasing rates are likely in the offing, according to some experts. Those changes include tapering of the Federal Reserve’s bond purchases, a program the central bank introduced in the first weeks of coronavirus shutdowns to “smooth market functioning.” The Fed is buying $80 billion in Treasury debt and $40 billion in mortgage-backed securities each month.

Economists expect announcements made by Fed Chair Jerome Powell at the Jackson Hole Economic Symposium later this week will provide clarity about the Fed’s intentions going forward.

“More definitive insight regarding the Fed’s inevitable plans to tighten monetary policy should result in a meaningful increase in rates, depending on how surprising Chair Powell’s announcement is,” said Speakman. “That said, should the Fed stop short of announcing plans to taper, mortgage rates would likely revert to recent lows.”

The other major interest rates also only showed slight one-basis-point changes week-over-week. The average 15-year fixed-rate mortgage climbed to 2.17% from 2.16%, while the rate stood at 2.46% one year ago.

The 5-year Treasury-indexed adjustable-rate mortgage edged downward to 2.42%, compared to 2.43% the prior week. In the same week of 2020, the 5-year ARM averaged 2.91%.

The rates still offer borrowers a window of opportunity to refinance, according to Khater, and home buyers would benefit as well — when they can find available homes.

“The major obstacle to higher home sales remains very low inventory for consumers to purchase,” he said.