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Mortgage Rates Jump 10 Basis Points

by Sea Point Realtors

The Freddie Mac fixed rate on a 30 year loan rose 10 basis points this week to 2.87%. Mortgage rates reacted to the rise in 10-year government bonds, fueled by investors who expected consumer prices to continue to rise and inflation to rise. Yesterday's release showed that July price growth was significant, but not as high as it was in June, especially when you factor in core inflation. In addition, the third weekly decline in unemployment insurance claims showed a sustained recovery in the economy. In short, rates are projected to move below 3% until the Fed sets a schedule for the expected reduction in monthly mortgage-backed security purchases. I expect monetary policy rejuvenation will likely push mortgage rates higher towards the end of the year.

The Federal Reserve has been a major buyer of $ 40 billion monthly mortgage-backed securities for over a year, in addition to $ 80 billion in government bonds. The central bank's goal was to maintain liquidity and a backstop for home finance, especially during the turbulent COVID period. These purchases have maintained strong downward pressure on interest rates. However, with residential construction moving rapidly from rebounding to overheating, investors are aware that as a first step in tightening monetary policy, the Fed could begin tapering its bond purchases. Interestingly, Fed insiders are also starting to express this view. Dallas Fed President Robert Kaplan said yesterday that the bank should start cutting its monthly government bond purchases in October. Kaplan is the only one who has put a timetable on this issue so far, but it underscores the fact that the issue is on the table.

In the real estate markets, low interest rates keep activity going in the late summer season, which historically has slowed. Realtor.com's weekly data shows the number of new properties for sale continues to rise, causing a noticeable slowdown in price hikes, which have increased less than 10% year-on-year over the past two weeks. We saw that for the first time last year. The combination of soaring inventories, slowing price increases and low interest rates provides a much-needed ray of sunshine for many buyers who are increasingly exhausted from an extremely competitive housing landscape. These factors also signal that autumn could prove to be a busier time of year than usual as buyers seek to capitalize on improving market conditions.

With prices soaring, Americans are spending more on all goods and services, adding pressure on monthly budgets, including housing. At today's rate, the monthly mortgage payment for a mid-price home is $ 106 more than it was at the same time in 2020.

George Ratius