Surging coronavirus cases lead mortgage rates to fall

The recent surge of new coronavirus cases helped lead mortgage rates to their lowest point in over a month, according to Freddie Mac.

The 30-year fixed-rate mortgage average dropped to 3.05% for the weekly period ending Dec. 23, according to Freddie Mac’s Primary Mortgage Market Survey. The drop comes after the 30-year rate had hovered near the 3.1% mark since mid November. One week ago, the 30-year average stood seven basis points higher, at 3.12%, while during the same seven-day period in 2020, it came in at 2.66%.

“The market volatility resulting from the COVID-19 omicron variant is causing mortgage rates to decrease,” said Sam Khater, Freddie Mac’s chief economist.

The 7-day weekly average of new cases has risen sharply in the first half of the month, with the total number of cases in the U.S. now over 50 million, according to the Centers for Disease Control and Prevention. The increase in new cases coincides with the emergence of the omicron variant, now the dominant strain in the U.S.

Market concerns about the new variant tempered any effect from last week’s Federal Reserve announcements, news that typically applies upward pressure on interest rates. Following a meeting of the Federal Open Market Committee, the central bank signaled it would speed the taper of its asset purchase program “in light of inflation developments and the further improvement in the labor market.” The Fed will draw back its pace of asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities. In January, total monthly purchases of Treasuries will fall to $40 billion per month and to $20 billion per month for MBS assets.

“The committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook,” the Federal Reserve said in a press statement.

While the omicron variant threw uncertainty into the housing market and the direction of rate moves, strong demand continues to fuel sales. “As the year comes to a close, the housing market is proceeding steadily,” Khater said. “However, rates are expected to increase in 2022, which will impact homebuyer demand as well as refinance activity.”

Along with the dip in the 30-year rate,the 15-year average also dropped, falling four basis points to 2.3% from 2.34% one week earlier. A year ago, the 15-year average came in at 2.19%.

The 5-year Treasury-indexed adjustable-rate mortgage, likewise, tumbled eight basis points to 2.37% from 2.45% the previous week. Last year at the same time, the 5-year ARM averaged 2.79%.