Mortgage rates increase as lenders try to manage volume
Paradoxically, mortgage rates actually increased this past week, even as the 10-year Treasury yield plumbed new depths, likely because lenders are too busy to handle the influx of applications.
The 30-year fixed-rate mortgage averaged 3.36% for the week ending March 12, up from last week when it averaged 3.29%, according to Freddie Mac. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.31%.
"As refinance applications continue to surge and lenders work to manage capacity, the 30-year fixed-rate mortgage ticked up from last week's all-time low," Sam Khater, Freddie Mac's chief economist, said in a press release. "Mortgage rates remain at extraordinary levels and many homeowners are smartly weighing their options to refinance, potentially saving themselves money."
Zillow, which tracks quotes lenders put through its system, also reported higher rates for the 30-year mortgage this past week.
"After bouncing along near record lows for a few days, mortgage interest rates shot up over the last two days. What's most curious about the move is that the jump hasn’t coincided with significant changes in Treasury yields, which were essentially flat on Tuesday and the early part of Wednesday even as mortgage rates jumped nearly 30 basis points," Zillow economist Matthew Speakman said in his commentary on that company's rate tracker.
"So, what's the deal? Demand for refinancing spiked as initial reports spread of record-low rates, and a mass selloff of bonds appears to be driven by fears of this surge in refinancing. In short, more refinancing reduces the value of mortgage-backed securities: Holders receive an earlier repayment than planned and then must reinvest that money elsewhere, presumably at a lower yield than that offered by the previous loan. Some are speculating that lenders may be artificially buoying advertised rates in order to stem this rising tide of refinancing activity and simply keep up with demand."
The 15-year fixed-rate mortgage averaged 2.77%, down slightly from last week when it averaged 2.79%, Freddie Mac said. A year ago at this time, the 15-year fixed-rate mortgage averaged 3.76%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.01%, down from last week when it averaged 3.18%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.84%.
Those rising rates could be a temporary blip, at least in a normal market.
"All else equal, if refinancing activity begins to slow, then rates will almost certainly trend back down. But of course, all else is not equal, and markets are now in the midst of their most tumultuous stretch since the financial crisis. More dramatic moves for mortgage rates appear likely, as investors continue to try and best position themselves to deal with the challenges posed by this environment," Speakman said.