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July 12, 2021
Freddie Mac reported this week that the 30-year fixed-rate mortgage averaged 3.02% for the week ending June 24. It’s the first time in ten weeks that the benchmark rate has risen above 3%.
In their weekly mortgage report Freddie Mac added, “as the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year.”
A 30-year fixed-rate mortgage is a home loan that maintains the same interest rate and monthly principal-and-interest payment over the 30-year loan period. The current average 30-year fixed mortgage rate on June 29, 2021, is up nine basis points from the previous week.
15-Year Fixed Mortgage
The 15-year fixed-rate mortgage, meanwhile, rose 10 basis points to an average of 2.34%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.53%, up one basis point from the previous week.
George Cipolloni, a portfolio manager at Penn Mutual Asset Management, said this week that while global forces impact the U.S. Treasury market, the 10-year’s rate slump also likely reflects domestic economic headwinds.
“I think, in the U.S., we are going to run through a cyclical wave of above-normal inflation rates.” The same MarketWatch article also highlighted inflation’s potential impact on interest rates. “Over the past 15 months, Fed asset purchases have helped keep credit flush during the pandemic and borrowing costs low for households and corporations. But as the economy and labor market heals, the central bank has signaled that interest rates could rise from the current 0%-to-0.25% range more quickly than initially anticipated.”
In general, inflation leads to higher interest rates because by raising interest rates the Fed aims to control economic growth and the rate of inflation. Although the Federal Reserve does not set mortgage rates, their actions do indirectly influence the rates consumers pay on their fixed-rate home loans when they refinance or take out new mortgages
There have been an increasing number of reports and warnings regarding rising inflation and last month it hit a 13-year high. The personal consumption expenditures core index – excluding food and energy costs – rose 3.4% in May on a year-over-basis, in line with Wall Street expectations but also the fastest increase since April 1992.
The same CNBC article that cited the consumption index also stated that “everything from airline tickets to hotel stays to the cost of buying a home has been on the rise and showing only occasional signs of letting up.” A separate inflation indicator, the consumer price index, moved up 5% in May from a year ago, while the producer price index surged 6.6%, the fastest rise on record.
Moreover, this week MarketWatch reported, “in light of the rising inflation the economy has seen in the pandemic recovery period so far, announcements from the Federal Reserve and central bank policymakers suggested that the Fed may move to raise interest rates sooner than was previously expected. Those announcements caused long-term bond yields to move higher at points over the past week.”
Additionally, Bob Parker, investment committee member at Quilvest Wealth Management, stated on CNBC, “we are going to get a period of significantly higher inflation.” Parker expected headline inflation in 2021 to remain between 4%-5% and core inflation to be close to 4%.
If rates do continue to rise, it will negatively impact both homeowners and buyers. A recent survey from Zillow found that only 22% of homeowners refinanced their mortgage over the past year, despite the fact that those who chose to refinance saved at least $300 a month on their mortgage payments.
In their weekly report, Freddie Mac seemed to express urgency, “for those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.”
Despite Freddie Mac’s prediction of higher rates in the second half of 2021 and the impact of looming higher inflation, mortgage rates remain unprecedented bargains across all terms. As a result, many homeowners are taking advantage of today’s low rate to potentially free up thousands of dollars through refinancing.