Mortgage rates were caught in a tug of war this week as economic news pushed them up and then pulled them down, leaving them back where they started.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average held steady at 3.75% with an average 0.5 point. (Points are fees paid to a lender equal to 1% of the loan amount and are in addition to the interest rate.) It was 4.53% a year ago.
The 15-year fixed-rate average rose to 3.22% with an average 0.5 point. It was 3.18% a week ago and 4.02% a year ago. The five-year adjustable rate average edged up to 3.46% with an average 0.4 point. It was 3.45% a week ago and 3.86% a year ago.
Last week’s employment report surpassed expectations, sending mortgage rates higher. Then Federal Reserve Chair Jerome Powell testified before Congress this week. His testimony that President Donald Trump’s trade war and slowing growth abroad are weighing on the U.S. economy sent rates back down.
“Treasury yields and mortgage rates spiked after last Friday’s employment report,” said Michael Becker, branch manager at Sierra Pacific Mortgage in White Marsh, Maryland. “With more jobs created than expected, markets quickly repriced the expectation of either a 25 basis-point or 50 basis-point rate cut from the Federal Reserve at their meeting in July. However, Fed Chairman Jay Powell testified in front of Congress (Wednesday) and said the economic ‘outlook continues to dim.’”
The financial markets are anticipating the Fed will cut its benchmark interest rate at its July 31 meeting. The benchmark rate is at 2.35%, the highest its been in more than a decade but still low by historical standards. The central bank is expected to lower the rate to 2.1% to stimulate the economy.
The Fed doesn’t set mortgage rates, but its decisions influence them. Home loan rates are more affected by the expectations of investors. If they are worried about the economy, their concerns can drive rates down.
Bankrate.com, which puts out a weekly mortgage rate trend index, found that two-thirds of the experts it surveyed say rates will remain relatively stable in the coming week.
Powell’s “dovish commentary has led to a rally in bonds and lower Treasury yields and mortgage rates,” Becker said. “I expect this commentary to put a lid on rates leading to the Fed meeting later this month. But I also don’t think they will rally from here until after the meeting.”
Meanwhile, mortgage applications dwindled during the holiday week. According to the latest data from the Mortgage Bankers Association, the market composite index – a measure of total loan application volume – decreased 2.4% from a week earlier. The refinance index fell 7% from the previous week, while the purchase index ticked up 2 percent.
The refinance share of mortgage activity accounted for 48.7% of all applications.
“Mortgage applications were down slightly, even after adjusting for the July 4th holiday, as we saw opposing moves in purchase and refinance applications over the week,” Joel Kan, an MBA economist, said in a statement. “Purchase applications increased from the previous week and were up 5% from a year ago, a continuation of the strong annual growth that we saw in the first half of 2019.”
The MBA also released its mortgage credit availability index this week that showed credit availability increased slightly in June. The MCAI ticked up 0.2% to 189.8 last month. An increase in the MCAI indicates that lending standards are loosening, while a decrease signals they are tightening.
“Jumbo credit availability increased for the sixth month in a row and is at its highest level since 2011, when the survey began,” Kan said. “Credit availability has generally increased in 2019 as lenders have worked to meet affordability challenges. Because mortgage rates have recently fallen and home price growth has decelerated in many markets, credit availability may stabilize at its current levels.”