Average U.S. Mortgage Rate Drops to 2.96% This Week, Freddie Mac Says
The average U.S. mortgage rate for a 30-year fixed loan fell to 2.96% this week, Freddie Mac said in a Thursday report.
The rate dropped from 2.99%, marking the eighth consecutive week it was at 3% or lower, the mortgage financier said. The average rate for a 15-year fixed home loan fell to 2.23% from 2.27%.
Economists had predicted home financing costs would be headed higher by now as the Covid-19 pandemic receded in America and the inflation that typically causes bond investors to demand higher returns picked up. Those upward pressures are being countermanded by the weakness of the global economy, said Dean Baker, a senior economist at the Center for Economic and Policy Research in Washington D.C.
“The bond market really is a world market,” Baker said in an interview. “The U.S. is recovering rapidly but the rest of the world has a long way to go.”
Covid-19 infections in the U.S. have plummeted in recent weeks as more Americans are vaccinated. Most states have dropped public health restrictions, causing economic activity to spike.
The jump in consumer spending is causing inflation to rise. Normally, that would put upward pressure on mortgage rates, but most bond investors are attributing the inflation spike to the year-ago comparison, a time when most of the nation was in lockdown, said Walt Schmidt, who leads mortgage strategy at FHN Financial.
The Consumer Price Index jumped 5% in May from a year ago, the largest annual increase since 2008, a Labor Department report said on Thursday. Federal Reserve policymakers and Treasury Secretary Janet Yellen, who used to lead the Fed, have said there will be temporary inflation pressures as the U.S. emerges from the pandemic.
“The market believes the Fed when it says that the inflation is transitory,” Schmidt said. “Obviously, the comparisons are coming off a very low base a year ago.”
While most economists predict the U.S. economy is going to expand this year at a gangbuster pace, bond investors are biding their time, Schmidt said. On Wednesday, the 10-year Treasury yield that serves as a benchmark for mortgage investors fell below 1.5% for the first time in a month.
“There’s obviously a huge economic recovery going on, but I think the bond market is a little skeptical right now on the long-term recovery,” Schmidt said.