Long-term bond yields are unexpectedly falling, pushing mortgage rates down to February lows.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average dropped to 2.9% this week. It was 2.98% a week ago and 3.03% a year ago. The 30-year fixed rate has remained below 3% six of the past seven weeks.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to come up with weekly national averages. 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 2.2%. It was 2.26% a week ago and 2.51% a year ago. The five-year adjustable rate average fell to 2.52%. It was 2.54% a week ago and 3.02% a year ago.
"Mortgage rates fell this week, reaching their lowest level since the winter," said Matthew Speakman, a Zillow economist. "Despite generally strong headline June jobs figures, a booming stock market and broader signs that the economy continues to recover, investors are continuing to downwardly revise their very optimistic forecasts for economic growth that they made earlier in the year. This shift in sentiment is placing downward pressure on longer-term Treasury yields and the mortgage rates they influence."
Despite June's employment report showing improvements in the labor market, the yield on the 10-year Treasury sank to its lowest point since February this week, closing at 1.30% Thursday. Wall Street analysts are baffled by the drop. Many predicted as the economy improved investors would ditch bonds, causing yields to rise near 2% at this point. Instead, they have fallen.
Minutes from the Federal Reserve's June meeting were released this week. They indicated that Fed officials have begun talking about tapering their bond-buying program, which has kept mortgage rates low, but not many seem eager to begin the process. Although financial markets had a muted reaction to the news, it is expected when the Fed does begin winding down its purchases that will send mortgage rates higher.
Bankrate.com, which puts out a weekly mortgage rate trend index, found more than half of the experts it surveyed expect rates to go down in the coming week.
Meanwhile, mortgage applications were down for the second week in a row, dropping to their lowest level since the beginning of 2020.