After seven consecutive increases, fixed mortgage rates reversed course this week.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 3.13%. It was 3.18% a week ago and 3.33% a year ago.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to come up with weekly national average mortgage rates. 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 survey is based on home-purchase mortgages, which means rates for refinances may be higher. The price adjustment for refinance transactions that went into effect in December is adding to the cost. The adjustment, which applies to all Fannie Mae and Freddie Mac refinances, is 0.5% of the loan amount. That works out to $1,500 on a $300,000 loan.
The 15-year fixed-rate average slid to 2.42%, compared with 2.45% a week ago and 2.77% a year ago. The five-year adjustable rate average rose to 2.92%. It was 2.84% a week ago and 3.4% a year ago.
"Mortgage rates fell this week, holding firm even as key economic data reports show signs of continued improvement," said Matthew Speakman, a Zillow economist. "Rates have paused their consistent ascent several times in the past few months, but for the first time since the beginning of the year, there are some indications that this reprieve from rates' upward trend could be a lasting one .... With coronavirus cases beginning to rise again in most states and many countries around the world, investors have a renewed reason for caution, which tends to push bond yields, and mortgage rates, downward."
The yield on the 10-year Treasury, which climbed to 1.73% on Monday, fell to 1.64% Thursday.
The minutes from the Federal Reserve meeting in March were released this week. In them, central bank officials indicated optimism about the economic recovery but signaled that they would keep interest rates low through 2023 and continue their bond-buying program. Since early in the pandemic, the Fed has been buying $120 billion in bonds each month, which has held down mortgage rates.
The Fed does not set mortgage rates, but its decisions can sway investors. Mortgage rates are influenced more by investors' expectations. Good economic news is often bad for rates because a strong economy prompts concern about inflation. Inflation causes bonds to lose value and yields to rise.
Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed expect rates to remain about the same in the coming week.
"Mortgage interest rates have been creeping higher for well over a month," said Elizabeth Rose, sales manager at AmCap Mortgage in Dallas. "Finally, it looks as though mortgage bonds may have caught a break. Mortgage bonds have broken the trend and are making a strong attempt at bouncing. While a modest improvement in rates is possible, it could be short lived. It is more likely that rates will hang onto the improvement and trend sideways."
Meanwhile, mortgage applications were down for the fifth week in a row. According to the latest data from the Mortgage Bankers Association, the market composite index -- a measure of total loan application volume -- decreased 5.1% from a week earlier. The purchase index fell 4% from the previous week, and the refinance index dropped 5%. The refinance share of mortgage activity accounted for 60.3% of applications.
With mortgage rates rising, refinance demand has retreated. Refinance volume has dropped by more than 30% over the past 10 weeks.
"The ongoing improvement in the economy and labor market is fueling buyer demand," said Bob Broeksmit, association president and chief executive officer. "Applications to buy a home decreased last week, but activity during the first quarter of 2021 outpaced year-ago levels. With mortgage rates rising to the highest level since last June, borrower demand for refinances continues to cool."
The association also released its mortgage credit availability index that showed credit availability increased in March. The index ticked up to 125.4 last month, rising by 0.6%. An increase in the index indicates lending standards are loosening, while a decrease signals that they are tightening.