Washington Post

After last week’s big jump, mortgage rates pulled back slightly, but that dip is expected to be short-lived.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped back below 3%, falling to 2.99% with an average 0.7 point. (Points are fees paid to a lender equal to 1% of the loan amount. They are in addition to the interest rate.) It was 3.01% a week ago and 2.87% a year ago.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The 15-year fixed-rate average dropped to 2.23% with an average 0.7 point. It was 2.28% a week ago and 2.37% a year ago. The five-year adjustable rate average rose to 2.52% with an average 0.3 point. It was 2.48% a week ago and 2.89% a year ago.

“While the steady upward momentum that rates have experienced over the past couple weeks recently leveled off, markets remain cautious as a series of potentially market-moving developments loom on the immediate horizon,” said Matthew Speakman, a senior economist at Zillow. “Chief among these is the September jobs report, due this Friday. A stronger-than-expected reading would arm the Federal Reserve with more ammunition to justify a tightening of monetary policy later this year and likely press mortgage rates higher. More broadly, the prospect of the federal government failing to raise the debt ceiling and some emerging signals that the economy is weathering the increase in COVID-19 cases is also placing upward pressure on mortgage rates. August consumer spending figures came in above expectations last week and gauges of service-sector activity surprised to the upside.”

Mortgage rates are influenced by several factors, but the movement of the 10-year Treasury bond yield tends to be one of the best indicators of where rates are headed. After falling to 1.48% to start the month, the yield on the 10-year Treasury bounced back to 1.53% on Wednesday. Yields on long-term bonds were stuck in a tight range for most of September but began rising late in the month. Many experts expect they will keep moving higher.

“Ten-year Treasury note yields continue to rise as a result of sobering economic news – lowering growth expectations, debt-limit brinksmanship between the Republicans and Democrats, questions about the supply chains of almost everything and inflation, China’s issues with real estate,” said Ken Johnson, a real estate economist at Florida Atlantic University. “The increase in the 10-year Treasury yields will result in upward pressure on mortgage rates.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed say rates will go up in the coming week.

“Since late September, yields on Treasurys and mortgage-backed securities have been rising, and so have mortgage rates,” said Michael Becker, branch manager at Sierra Pacific Mortgage. “With the number of COVID cases declining, markets are convinced the [Federal Reserve] will announce the tapering of their purchases of Treasurys and mortgage-backed securities, hence the reason for rising rates. This rise in rates may accelerate should economic reports, like this Friday’s non-farm payroll report, show strength.”

Meanwhile, mortgage applications continued to slump. According to the latest data from the Mortgage Bankers Association, the market composite index – a measure of total loan application volume – decreased 6.9% from a week earlier. The refinance index fell 10% to its lowest level in three months, while the purchase index was down 2%. The refinance share of mortgage activity accounted for 64.5% of applications.

“The recent sharp increase in mortgage rates continues to slow borrower demand for refinances,” said Bob Broeksmit, MBA president and CEO. “Applications last week dropped to the lowest level since July, and with rates on the upswing, MBA expects activity to remain below the stronger levels seen earlier this year. Mortgage lenders continue to report strong homebuyer demand this fall, but higher home prices and low supply are causing some prospective buyers to delay their plans. Applications to buy a home decreased on a weekly and annual basis.”