Mortgage rates rise again in response to higher demand
Mortgage rates rose sharply this week as originators looked to manage the overwhelming demand from consumers, according to Freddie Mac.
The 30-year fixed-rate mortgage averaged 3.65% for the week ending March 19, up from last week when it averaged 3.36%. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.28%.
"Mortgage rates rose again this week as lenders increased prices to help manage skyrocketing refinance demand. This is expected to be a short-term phenomenon as lenders work through their backlog," Sam Khater, Freddie Mac's chief economist, said in a press release. "On the purchase front, daily loan purchase applications were rising as of mid-February but started to decline last Friday."
But managing demand was just part of the equation that explained this past week's mortgage rate movements, according to Matthew Speakman, an economist with Zillow. Stock market volatility, the federal government's spending to provide relief from the impact of COVID-19 and underlying stresses in the broader markets all combined to weaken demand for government debt. The 10-year Treasury note yields, the benchmark for mortgage rates, returned above the 1% mark on March 18.
"The market for Treasurys and other bonds, including mortgage-backed securities, tossed and turned this week, experiencing massive losses and gains that would normally be deemed extraordinary if they weren't mirroring behavior from the day before," Speakman said in his commentary on Zillow's rate tracker. "Underlying liquidity issues in financial markets, and subsequent Federal Reserve actions taken to address those issues, drove most yield and rate movements throughout the week.
"But the largest change on the week was the federal government's announcement of a $1 trillion spending plan to combat the damage to the economy wrought by the coronavirus. The plan will require a large amount of government debt to be issued, in the form of U.S. Treasurys. Knowing that more bonds will be in the market soon, current Treasurys suddenly warranted lower prices in recent days, which coincide with higher yields. Rates rose sharply on Wednesday and now, remarkably, sit a full percentage point above where they were just over two weeks ago," Speakman said.
The 15-year fixed-rate mortgage averaged 3.06%, up from last week when it averaged 2.77%, according to Freddie Mac. A year ago at this time, the 15-year fixed-rate mortgage averaged 3.71%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.11% with an average 0.2 point, up from last week when it averaged 3.01%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.84%.
And it's a fool's errand to guess what will happen with mortgage rates in the short term, Speakman said.
"With so much still uncertain, and market movements remaining unpredictable, it's a losing game to try and predict where rates are heading next. But it's safe to say that more dramatic movements are likely on the horizon," he said.