Mortgage charges drop for a second week amid blended financial traits

The average 30-year fixed-rate mortgage stayed below 3% for the third straight week as economic data sent mixed signals as to which direction interest rates might head in the near future.

The 30-year median rate fell to 2.96% for the weekly period ended June 10, according to Freddie Mac's weekly Primary Mortgage Markets Survey, a three basis point decrease from 2.99% the previous week. A year ago the rate was 3.21%.

The pace of the US economic recovery has fueled inflation concerns and rumors that the Federal Reserve would raise interest rates and phase out bond purchases later this year. However, Fed chairman Jay Powell has repeatedly dismissed talk of rate hikes, suggesting that the Fed would not consider rate hikes unless inflation stayed above 2% for an extended period of time.

However, government data released Thursday showed another month of rising prices that is likely to fuel further rate hike speculation. The consumer price index rose 5% annually in May, the largest 12-month jump since 2008. The increase in May followed a steep increase of 4.2% in the April report. The month-on-month CPI increase was 0.6% seasonally adjusted.

Rising prices for lumber and other consumables have left their mark on recent home sales. Freddie Mac's chief economist Sam Khater said the average home loan size remains high even with commercial mortgage activity weak.

"This has yet to lead to weaker home price developments as the shortage of inventory continues to keep prices high," he stated in a press release.

Despite the headline-grabbing activity around inflation, the 30-year interest rate has remained in a range between 2.95% and 3% on a weekly basis since the end of April.

As prices continue to rise, government employment data showed a slightly different view of the American economy recovering from the effects of the coronavirus. Unemployment has fallen, but job creation remained below expectations for both April and May, suggesting that economic performance may not be as robust as hoped.

While conflicting data trends could help explain why mortgage rates – and the corresponding government bond yields – haven't risen, that doesn't fully explain why they've fallen over the past week, a move that Zillow economist Matthew Speakman called "confusing" designated.

"It appears that underlying market dynamics and other factors, such as increased foreign demand for US Treasuries, are also likely to help maintain downward pressure on yields," Speakman said in a statement.

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

The 5-year Treasury-indexed Adjustable-Rate Mortgage Average [ARM] declined 11 basis points from week to week, falling from 2.64% to 2.55%. A year ago, the 5-year ARM average was 3.1%

The upcoming retail sales report, as well as statements from both the Fed and the European Central Bank, could shed some light on interest rate moves ahead, especially given the conflicting messages from various indicators that have puzzled economic forecasters.

"The fact that interest rate movements don't seem tied to specific dates or developments makes it difficult to plan your path into the near future," noted Speakman.

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