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Mortgage Rates Steady as Investors Wait to See What Fed Will Do

Federal Reserve Powell

Federal Reserve Chairman Jerome Powell had one job to do on Friday when he made his annual speech at the Jackson Hole Economic Policy Symposium: Keep bond investors from freaking out.

No one wanted a repeat of the so-called “taper tantrum” in 2013 – the last time the Fed extricated itself from the mortgage market – when rates for 30-year fixed home loans spiked more than a percentage point over eight weeks.

Powell succeeded. The average U.S. rate for a 30-year fixed mortgage is 2.87% this week, flat with last week, Freddie Mac said in a report on Thursday.

“The goal of Powell and the Fed in general is to unwind their purchases, engage in tapering, but do it in the way to avoid 2013,” said Walt Schmidt, who leads mortgage strategy at FHN Financial. “They’ve achieved that so far.”

The Fed has been buying $120 billion of Treasuries and mortgage-backed securities as part of a program it began in March 2020 to support the economy during the shock of the pandemic. Both types of bond purchases put downward pressure on rates because an increase in demand tends to shrink the return investors get, and MBS yields track the Treasury market.

After the central bank became the MBS market's biggest buyer, rates for home loans dropped below 3% for the first time ever in July 2020. The rate set a record low of 2.65% in the first week of 2021.

When it seemed like a national vaccination program was going to end the pandemic in the spring, the average U.S. rate rose to a 10-month high of 3.18% before a resurgence of Covid-19 infections sent it below 3% again.

For the last 10 weeks, as the hyper-contagious Delta variant has ripped through states with low vaccination rates, the rate has remained under the 3% threshold, as measured by Freddie Mac.

"There’s an expectation that covid’s Delta variant is going to keep things in the economy moving a bit slowly, and that's going to be a moderating influence on mortgage rates," said Mark Goldman, a broker with C2 Financial Corp. in San Diego.

The average U.S. rate for a 30-year fixed mortgage in the current quarter likely will be 2.8%, Fannie Mae said in an Aug. 19 forecast. That’s lower than the 3% the mortgage buyer forecast a month earlier for the same period.

For the year, the rate likely will average 2.9%, lower than the 3% Fannie Mae forecast in July before covid's Delta variant flooded the nation’s hospitals with unvaccinated Covid-19 patients.

That would be an all-time low for an annual average, beating the 3.1% in 2020 that was the lowest ever recorded.

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