COVID-19 worries suppress mortgage rates, as cases continue to rise

Mortgage rates fell to their lowest levels in months, as the latest spikes in COVID-19 cases gave wary investors few reasons to make moves that might lead rates to increase.

The average 30-year fixed-rate mortgage dropped to 2.77% — the lowest since mid February — for the weekly period ending August 4, according to Freddie Mac’s Primary Mortgage Market Survey. The rate averaged 2.8% one week earlier and stood at 2.88% during the same week a year ago.

“With global market uncertainty surrounding the delta variant of COVID-19, we saw 10-year Treasury yields drift lower, and consequently, mortgage rates followed suit,” Sam Khater, chief economist at Freddie Mac, said in a press statement.

While vaccine rollouts helped drive a surge in economic activity this year, leading to record increases in inflation and concerns that the quicker-than-anticipated recovery might result in fiscal overheating, mortgage rates stayed relatively muted in response. The 30-year fixed rate average came in at or below 3% for all but one week since mid-April.

Even with promising signs of recovery, the threat of COVID-19 never strayed far from the minds of those in the financial markets, according to Zillow economist Matthew Speakman.

“For months, the market impact of pandemic-related factors has far outweighed the influence of traditional economic reports, and developments in recent weeks have reinforced that trend,” he wrote in a statement. “The sharp uptick in the number of delta variant cases has introduced a fresh dose of uncertainty among investors and has called into question how soon economic activity — and life — can return to pre-pandemic levels of normalcy.”

The latest coronavirus data from the Centers for Disease Control and Prevention added further reason to think the economic recovery has more obstacles in its way. For the last week of July, the seven-day moving average of daily new cases increased 64.1% week-over-week, as cases, hospitalizations and deaths went up in nearly every state. Mortgage rates are unlikely to rise while COVID concerns remain.

“Recent market movements reinforce the months’ long notion that pandemic-related factors will continue to dictate the path forward for the market, and a sharp upward move in mortgage rates appears unlikely until we get a better handle on COVID,” Speakman said.

Remarks from the Federal Reserve also provided few ripples. While momentum for tapering bond purchases picked up recently, the Fed has not yet offered a firm timeline of when the process would begin, noting that sectors most affected by the pandemic still had not fully recovered. The central bank introduced its bond-purchase program last year to help ease economic distress caused by the pandemic. Fed Chair Jerome Powell also added the taper of mortgage-backed securities would not start sooner than those of Treasuries, despite calls from some officials to do so due to the hot housing market.

15-year rate remains at historic low
The latest rate numbers across the board continue to favor potential borrowers, boding well for renovations, refinances and purchases, said Khater. While the 30-year mortgage hit a seasonal low, the 15-year fixed-rate average fell to 2.1% last week, the lowest recorded level since the start of the Freddie Mac survey, and remained unchanged this week. In the same weekly period a year ago, the 15-year average came in at 2.44%.

The 5-year Treasury-indexed adjustable-rate mortgage also dipped, dropping five basis points to 2.4% from 2.45% a week earlier. One year ago, the 5/1 ARM averaged 2.9%.