Mortgage rates fall for a second week amid mixed economic trends

The average 30-year fixed-rate mortgage remained under 3% for a third consecutive week, as economic data sent mixed signals about which direction rates might head in the near term.

The 30-year average rate fell to 2.96% for the weekly period ending June 10, according to Freddie Mac’s weekly Primary Mortgage Markets Survey, down three basis points from 2.99% the previous week. One year ago, the rate stood at 3.21%.

The U.S. economic recovery’s pace has fueled inflation worries and led to chatter that the Federal Reserve would consider hiking interest rates and taper bond buying later this year. But Fed Chair Jay Powell has repeatedly shot down talk of raising rates, indicating the Fed would not consider increases unless inflation stayed above 2% for an extended period.

But government data released on Thursday showed another month of rising prices that will likely fuel more rate-hike speculation. The Consumer Price Index in May rose 5% annually, the biggest 12-month jump since 2008. The May increase followed a steep 4.2% annual uptick in April’s report. The month-over-month CPI increase came in at 0.6% on a seasonally adjusted basis.

Rising prices of lumber and other supplies left their mark in recent home sales. Even with softened purchase mortgage activity, the average size of home loans remains high, according to Sam Khater, Freddie Mac chief economist.

“It has yet to translate into a weaker home price trajectory because the shortage of inventory continues to cause pricing to remain elevated,” he noted in a press release.

Despite the headline-grabbing activity surrounding inflation, the 30-year fixed rate average stayed in a range between 2.95% and 3% each week since late April.

While prices continue climbing, government jobs data presented a slightly different view of the American economy as it recovers from the effects of coronavirus. Unemployment has fallen, but the number of jobs added came in under expectations for both April and May, indicating economic performance might not be as robust as hoped.

Although conflicting data trends could play into why mortgage rates — and corresponding Treasury yields — have not increased, it doesn’t completely explain why they fell over the past week, a movement described as “perplexing” by Zillow economist Matthew Speakman.

“It appears that underlying market dynamics, and other factors, such as an increased foreign demand for U.S. Treasurys, are likely also helping to keep downward pressure on yields,” Speakman said in a statement.

Average rates during the weekly reporting period also fell for other major mortgage terms. The 15-year fixed-rate mortgage average dropped to 2.23% from 2.27%. In the same week of 2020, the rate stood at 2.62%.

The 5-year Treasury-indexed adjustable-rate mortgage average, or ARM, posted an 11-basis-point decrease week over week, falling to 2.55% from 2.64%. One year ago, the 5-year ARM average came in at 3.1%

The upcoming retail sales report as well as statements from both the Fed and the European Central Bank may provide some clarity regarding rate movements to come, especially given the inconsistent messages coming from various indicators that have puzzled economic forecasters.

“The fact that rate movements don’t appear to be tied to any specific data or developments makes it difficult to chart their path forward in the near term,“ Speakman noted.