Mortgage interest rates are on the rise as COVID-19 vaccines and incentives are introduced

The 15-year fixed-rate mortgage has since risen only seven basis points to an average of 2.23%. The five-year Treasury-indexed floating rate hybrid mortgage averaged 3.12%, up 37 basis points from the previous week.

“As government bond yields have risen, it is putting pressure on mortgage rates to rise,” said Sam Khater, Freddie Mac’s chief economist in the report.

Historically, mortgage rates have roughly tracked the direction of long-term bond yields, including the yield on the 10-year Treasury. During the pandemic, that relationship weakened from time to time, largely due to capacity constraints within the mortgage industry.

Over the past week, the 10-year Treasury posted its longest string of daily yield gains since 2017. Returns have risen as investors expect President-elect Joe Biden and a Democrat-controlled Congress to provide additional stimulus amid the COVID -19 pandemic.

“The economy is still weak at the moment, but the incoming administration with the backing of Congress seems likely to provide significant additional stimulus that will help offset the ongoing virus-related revenue and spending disruption,” said Danielle Hale, chief economist at Realtor.com. . “In addition, vaccines and the recently approved incentives are being rolled out further, giving consumers and investors reason to expect better things to come this new year.”

But a “sustained upward spike is far from inevitable,” warned Matthew Speakman, an economist at Zillow ZG,
+ 1.33%.
Many have criticized vaccine rollout in the US so far for being too slow, and concerns persist as to whether the government’s stockpile will be sufficient in the long run.

Any major hiccups in lawmakers’ efforts to speed up the country’s recovery from the pandemic could bring rates down again.