Mortgage Rates Fall to Five-Month Low as Delta Concerns Rise

Mortgage rates fell for three straight days to a five-month low last week as concerns about a Delta-fueled resurgence of the Covid-19 pandemic in the U.S. overtook bond-investor fears about an inflation jump.

The daily average U.S. rate for a 30-year fixed mortgage eligible for purchase by Fannie Mae or Freddie Mac fell to 3.08% on Friday, according to data measuring locked rates from Optimal Blue, as Covid-19 infections surged in states with low vaccination rates. Earlier, on Tuesday, the day a government report showed inflation rose at the fastest pace in seven years, it had jumped to an 11-day high of 3.14%

“I think it’s absolutely the resurgence of the pandemic that’s influencing bond investors now,” said Dean Baker, a senior economist at the Center for Economic and Policy Research in Washington D.C. “We’re seeing a spread of the Delta mutation in the U.S. – and even more so in the UK and the rest of the world – to a degree that's creating concern about the economic impacts.”

New Covid-19 infections in the U.S. rose to 79,300 on Friday, according to data from Johns Hopkins University, as the more transmissible Delta mutation first identified in India became the nation’s dominant strain. That’s more than five times the 14,500 seen nationally on July 1. In the UK, new infections are at the highest level since mid-January.

Inflationary concerns tend to put upward pressure on mortgage rates because investors in bonds backed by home loans see it as eating away at their returns. However, last week's jump in new infections was large enough to quash those fears, Baker said.

“The inflationary concerns have been there,” Baker said. “We got the CPI on Tuesday,” he said, referring to the Consumer Price Index data, “and it was higher than most expected, but it was mostly items like cars causing the increase. What’s new here, what investors are worried about, is the Delta variant driving new infections.”

About three-fourths of U.S. economic growth is fueled by consumer spending, and if the Delta mutation begins to influence consumer decisions it could chill the nation’s recovery from last year’s steep recession, said Keith Gumbinger, vice president of mortgage data firm HSH.com.

Mask mandates for everyone, including people who are vaccinated, were reinstituted for interior public spaces in Los Angeles County at midnight on Saturday to combat the spread of the Delta mutation, which is almost three times as infectious as the original strain of the virus that began slamming the U.S. in March 2020. In Las Vegas, health officials on Friday made the use of masks in public interior spaces a recommendation, not a requirement, for everyone including vaccinated people.

“If we see the Delta mutation spread enough, even some of the vaccinated folks might decide to stay out of stores or restaurants,” Gumbinger said. “While we all know the vaccine is highly effective in keeping people out of the hospital, it’s not a guarantee that you won’t get covid.”

The vaccines from Pfizer and Moderna proved last year to be about 95% effective in preventing infection from the earlier strains of Covid-19, though that level has declined in recent studies measuring them against the newer forms of the virus. The Johnson & Johnson vaccine proved in clinical trials to be about 66% effective in preventing illness.

However, all three of the Covid-19 vaccines approved in the U.S. were shown to be close to 100% effective in preventing hospitalization and death when measured against earlier strains of the virus.

“It’s not going to be the same kind of dire concern we had months ago, before the widespread availability of vaccinations, but the optimism that we were finally coming to the end of the pandemic has been tempered,” Gumbinger said.