Mortgage rates drop for the third consecutive week

The 30-year fixed-rate mortgage dipped slightly this week, even as the latest government Consumer Price Index pointed to inflation climbing in June at its fastest pace in over a decade.

According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year average came in at 2.88% for the weekly period ending July 15, falling to its lowest point since February, and down two basis points from 2.9% the previous week. One year ago, the 30-year rate averaged 2.98%.

Despite previous concerns that interest rates would rise, it marked the third weekly drop in a row, continuing a 2021 trend of major economic news leaving markets relatively unswayed. Although Treasury yields initially spiked after the June report was released, they then subsided — as has been the case after previous announcements — leading to the latest small decline.

Favorable interest rates led to a surge in refinancing activity in the first half of the year, especially as prices hit record highs due to limited housing supply and high costs of materials. But recent market data showed home listings ticking upward, and current rates may benefit home buyers as well.

“Since their peak at 3.18% in April, mortgage rates have declined by thirty basis points,” said Sam Khater, Freddie Mac chief economist, in a press release. “While this decline is not large, it provides modest relief to borrowers who are purchasing in a market with strong home appreciation and scant inventory.”

15-year rate rises 
The average for the 15-year fixed-rate mortgage climbed again after two weeks of declines. The rate came in at 2.22%, up from 2.2% a week earlier while still below the year-ago average of 2.48%.

The 5-year Treasury-indexed adjustable-rate mortgage fell five basis points to 2.47% from 2.52% week over week. In the same week last year, the 5/1 ARM came in at 3.06%.

Rates likely to remain low
The current trend is likely to continue for the foreseeable future, according to Zillow economist Matthew Speakman. Central bank leaders maintained that the current pace of inflation is transitory, a sign of economic recovery from last year’s distress and current supply-chain issues. Speakman expects any increases to be modest. “Rates continue to offer only muted reactions to historically high inflation readings, and investors’ expectations for inflation have plateaued in the last couple months,” he wrote in a statement.

June’s Consumer Price Index logged a 5.4% year-over-year increase and rose 0.9% from May’s numbers. Both increases represent the index’s largest since 2008. Fed chair Jerome Powell said he expected inflation to remain elevated for several months but would moderate, a point he reiterated on Wednesday in testimony before the House Committee on Financial Services. But throughout the summer, Powell and other Fed officials hinted that the central bank could begin tapering mortgage-bond purchases as early as this year as well. The Fed began its bond-purchase program at the beginning of the pandemic in order to stimulate the economy.