The average U.S. mortgage rate dropped five basis points last week to 3.13%, according to Freddie Mac’s Primary Mortgage Market Survey. It’s the first decline in mortgage rates in two months.
Sam Khater, Freddie Mac’s chief economist, pointed to a modest decline in treasury yields as the leading factor behind last week’s drop. Traders were hesitant in the market ahead of the Fed releasing its March FOMC minutes as many monitored talks of inflation. However, once again, the Fed showed no signs of policy changes despite forward economic recovery.
Fed purchases have helped to drive mortgage rates and other loan interest rates to the lowest level on record by boosting competition for bonds, which compresses yields.
But a slight dip in rates is advantageous for borrowers who missed the “forever rates” period and didn’t refinance when they had the chance. A 40-plus basis point rise in mortgage rates over the past month resulted in approximately 7 million high-quality refi candidates who are no longer able to lock historically low rates, according to a recent report from Black Knight.
According to the Mortgage Bankers Association, refinance mortgage applications declined for the fifth straight week. The refinance index was down 5% from the previous week and 20% lower than the same week one year ago. Overall, refinancing volume over the past 10 weeks is down more than 30%.
Increasing Lending and Servicing Capacity – Regardless of Rates
The low-rate environment won’t last forever, and both lenders and servicers need to be able to keep their costs down while managing volume fluctuations once things start to normalize.
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Borrowers need to act fast though, as treasury yields are already recovering. Recent comments by the Fed could potentially push rates back up by next week’s time. As mortgage rates rise, purchase demand will also rise, though homebuilders are fighting an uphill battle due to historic lumber prices and supply chain and labor issues.
“There might even more intensity this year, since 2020’s spring homebuying season was limited by virus-related lockdowns,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Home-selling sentiment experienced positive momentum across most consumer segments, nearly reaching pre-pandemic levels and generally indicative of a strong home seller’s market.”
