Mortgage rates have inched upward this week, according to a new report from Freddie Mac, potentially raising questions about the future of what has turned out to be a bonanza for real estate over the past few months.
The report shows that for the seven-day period ending Thursday, 30-year fix rate mortgages had an average rate of 2.99 percent. That’s up from 2.96 percent one week prior. For a 15-year mortgage, rates averaged 2.54 percent, up from 2.46 percent a week ago.
Obviously, those are still great rates. The report itself notes that one year ago 30-year mortgages had an average rate of 3.55 percent, and 15-year mortgages had an average rate of 3.03 percent — both of which figures were themselves considered quite low at the time. The fact that today’s rates remain well below last year’s should give potential homebuyers some reassurance.
However, there is evidence that even small upticks in rates can have a cooling effect on the sector. For example, on Wednesday a report from the Mortgage Bankers Association (MBA) revealed that mortgage applications dropped 3.3 percent over the past week. Refinance applications dropped 5 percent.
Joel Kan, a vice president at the MBA, said in the report that a “rise in rates dampened refinance activity.”
“Positive economic data reported last week on retail sales, as well as a large U.S. Treasury auction, drove mortgage rates to their highest level in two weeks,” Kan said.
The report goes on to note that the number of mortgage applications remains up significantly year over year, but these relatively small changes offer a kind of thought experiment as to what might happen if rates started trending upward. So far at least, real estate has overall done exceptionally well during the most recent months of the coronavirus pandemic. Agents have reported explosive activity and bidding wars, and buyers have been left scratching their heads as prices keep going up in the face of a broader economic downturn.
Low mortgage rates have played a key roll in those trends. Indeed, speaking to Inman last week about bidding wars, realtor.com senior economist George Ratiu pointed out that “real estate is really having a hot summer” thanks to “demand fueled by historically low mortgage rates.”
Rates moving in the opposite direction, then, should consequently have the opposite effect on the market, namely slowing things down.
For the time being, though, that scenario is mostly hypothetical. Speaking to Inman Thursday, Keith Gumbinger — vice president of mortgage resource firm HSH — said the rate changes so far appear to be a “minor bounce off of the bottom.” That bounce has been influenced by several trends, including positive economic news and a strong stock market.
On the other hand, Gumbinger said the Federal Housing Finance Agency recently allowed Fannie Mae and Freddie Mac to impose a half-point fee on refinances. The fee could impact lenders in the short term and end up being passed on to consumers in the future. And it represents risk in the market, especially related to mortgage forbearance programs.
“Fannie and Freddie have said there are still tremendous risks in the marketplace that they’re seeing,” Gumbinger said.
Still, risks not withstanding, Gumbinger said “we are in some pretty fantastic times in terms of borrow costs.” And Kan, in the MBA report, described housing as “a bright spot in the current economic recovery.”
And perhaps most importantly of all, Gumbinger doesn’t see small rate changes fundamentally altering consumer behavior.
“For the vast majority of borrowers,” he said, “this doesn’t change the equation whether they’re going to buy a house.”