Mortgage rates showed little movement during the week as worries over rising coronavirus numbers dampened promising economic news, according to latest data from Freddie Mac.
The 30-year fixed rate mortgage average for the weekly period ended August 26 increased one basis point to 2.87%. The interest rate was 2.86% a week earlier and 2.91% compared to the same period in 2020.
"The tug-of-war between the economic recovery and rising COVID-19 cases has moved mortgage rates sideways in recent weeks," said Sam Khater, Freddie Mac's chief economist.
This year's soaring inflation sparked speculation about when interest rates might catch up to hedge against a potentially overheated economy. A better-than-expected job report in July also pointed to signs of a strong recovery from the 2020 pandemic-induced recession. But government bond yields this summer – and corresponding mortgage rates – have not maintained any upward momentum as investors remain cautious. The 30-year average rate stayed below 3% for the past nine weeks and has only risen above this level once since mid-April.
The recent spikes in coronavirus cases have also dampened much of the optimism from earlier this year and will continue to put downward pressure on them, according to Zillow economist Matthew Speakman.
But according to some experts, changes in monetary policy are likely that would lead to rising interest rates. These changes include curbing the Federal Reserve's bond purchases, a program the central bank put in place during the first few weeks of the coronavirus shutdown to "keep the market running smoothly." The Fed buys $ 80 billion in US Treasuries and $ 40 billion in mortgage-backed securities every month.
Economists expect Fed Chairman Jerome Powell's announcements at the Jackson Hole Economic Symposium later this week will clarify the Fed's future intentions.
"A clearer understanding of the Fed's inevitable plans to tighten monetary policy should result in a significant rate hike, depending on how surprising Chairman Powell's announcement is," Speakman said. "Still, if the Fed stopped announcing its plans to cut, mortgage rates would likely return to their recent lows."
The other major interest rates also showed only minor changes of one basis point on a weekly basis. The average 15-year fixed-rate mortgage rose from 2.16% to 2.17%, compared to 2.46% a year ago.
The 5-year Treasury-indexed adjustable rate mortgage fell to 2.42% compared to 2.43% the previous week. In the same week of 2020, the 5-year ARM averaged 2.91%.
Interest rates still give borrowers a refinancing option, according to Khater, and homebuyers would benefit too – if they can find available homes.
"The main barrier to higher home sales remains very little inventory for consumers to buy," he said.