Font size
Mortgage rates typically rise and fall along with returns on 10-year Treasury bonds, as both are affected by investor activity in the bond market.
Bing Guan / Bloomberg
Mortgage rates have risen from their all-time lows this week. Homebuyers and owners looking to refinance shouldn’t expect to go out of business again.
Bond yields, which have risen steadily since mid-August in the hope of further stimulus and optimism that the economy will recover once a vaccine is distributed, rose rapidly in the new year, with the benchmark on 10-year Treasury yield hitting 22 basis points (one hundredth of one percentage point) to close to 1.15% this week.
That could be an indication that ultra-low mortgage rates – which generally move with 10-year rates – have bottomed out. Mortgage rates have risen to 2.79% this week from 2.65% the week before.
Freddie Mac
reported Thursday. “Now that government bond yields have risen, it is putting pressure on mortgage rates to rise,” said Sam Khater, Freddie Mac’s chief economist.
Mortgage rates typically rise and fall along with returns on 10-year Treasury bonds, as both are affected by investor activity in the bond market. Both mortgage rates and Treasury yields fell to new lows or near-ever lows during the pandemic, with a 30-year fixed mortgage rate averaging about 2.83% over the past six months, according to data from Freddie Mac, and the 10- year treasury yield averages 0.78%, according to data from the Board of the Federal Reserve System.
While both declined during the pandemic, the difference between 10-year Treasury and 30-year fixed-rate mortgage rates was outside the usual range as a thriving refinancing market overwhelmed lenders, causing mortgage rates to fall less than interest rates. As a result, mortgage rates continued to fall even after interest rates started to rise in August.
If government bond yields continue to rise, mortgage rates are likely to hit historic lows. “The all-time low in mortgage rates is probably over,” said Lawrence Yun, chief economist at the National Association of Realtors, in an email. Barron’s. “Expect a slight rise in mortgage rates in the coming months.”
If spreads between the 10-year interest rate and mortgage rate remain within their current range, mortgage rates would likely rise to about 3.5% by the end of 2021, said Joel Kan, associate vice president of economic and industry forecasting. Mortgage Bankers Association, in an interview with Barron’s. While an increase in mortgage rates is likely to dampen demand for refinancing, Kan says he doesn’t expect rising rates to affect the housing market.
While raising government bond yields puts more pressure on mortgage rates, there is no guarantee the two will go into lockstep, Keith Gumbinger, vice president of mortgage website HSH.com, wrote in an email. Barron’s. “Mortgage lenders are flush with the profit and therefore can absorb some of the increase for a while to keep things in.” The Federal Reserve’s purchases of mortgage-backed securities, which help maintain market liquidity in times of crisis, also play a role, he said.
Even if mortgage rates rise this year, they still have a long way to go before they hit historic highs. “While mortgage interest rates are expected to rise modestly in 2021, they will remain undeniably low, supporting home buyer demand and leading to continued refinancing activity,” Freddie Mac’s Khater wrote in a press release. Freddie Mac expects the 30-year fixed mortgage rate to average 2.9% in 2021 and 3.2% in 2022, according to the organization’s quarterly forecast.
According to data from Freddie Mac, the average 30-year mortgage rate dating back to 1971 is 7.90%. Over the past decade, the average rate was 3.93%. The highest average percentage recorded by Freddie Mac was 18.63% in early October 1981.
Write to [email protected]