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Mortgage rates usually rise and fall along with 10-year treasury yields, as both are influenced by investor activity in the bond market.
Bing Guan / Bloomberg
Mortgage rates have risen this week from an all-time low. Home buyers and homeowners who want to refinance should not expect them to go back down.
Bond yields, which have risen steadily since mid-August in hopes of further stimulus and optimism that the economy will return with the distribution of a vaccine, rose rapidly in the new year, with the Treasury’s 10-year yield rising by 22 basis points (one hundredth of a percentage point) to close up 1.15% this week.
This could be an indicator that ultra-low mortgage rates – which generally move with 10-year treasury yields – have peaked. Mortgage rates rose this week to 2.79% from 2.65% the previous week,
Freddie Mac
reported on Thursday. “As Treasury yields have risen, it is putting pressure on mortgage rates to rise,” said Sam Khater, Freddie Mac’s chief economist.
Mortgage rates usually rise and fall along with 10-year treasury yields, as both are influenced by investor activity in the bond market. Both mortgage rates and Treasury yields have fallen to new lows or near historic lows during the pandemic, with the 30-year fixed-rate mortgage averaging 2.83% in the past six months, according to Freddie Mac and the Treasury. 10 years. average yield of 0.78%, according to data from the Board of Governors of the Federal Reserve System.
Although both declined during the pandemic, the gap between 10-year Treasury yields and 30-year fixed-rate mortgage rates widened beyond its usual range, as a booming refinancing market outpaced creditors, causing mortgage rates to fall less. than yields. As a result, mortgage rates continued to fall even after yields began to rise in August.
If Treasury yields continue to rise, mortgage rates are likely to reach historic lows. “The absolute decline in mortgage rates is likely to end,” Lawrence Yun, chief economist at the National Association of Realtors, said in an e-mail to Barron’s. “Expect a slight upward push on mortgage rates in the coming months.”
If the differences between 10-year and mortgage rates remain in their current range, the mortgage rate is likely to rise to about 3.5% by the end of 2021, said Joel Kan, associate vice president of economic and industrial forecasts for the Association of Mortgage Banks. , in an interview with Barron’s. While an increase in the mortgage rate would likely mitigate some demand for refinancing, Kan says rising rates are not expected to affect the home buying market.
While rising Treasury yields are putting more pressure on mortgage rates, there is no guarantee that the two will move in steps, Keith Gumbinger, vice president of mortgage site HSH.com, wrote in an email to Barron’s. “Mortgage lenders are full of profits and can therefore absorb some of the growth for a period of time to maintain their current business.” Acquisitions of the Federal Reserve for mortgage-backed securities, which help maintain market liquidity in times of crisis, also play a role, he said.
Even though mortgage rates are rising this year, they have a long way to go before they reach all-time highs. “While mortgage rates are expected to rise modestly in 2021, they will remain undeniably low, supporting the demand for homebuyers and leading to continued refinancing,” Freddie Mac’s Khater said in a statement. . Freddie Mac expects the 30-year fixed rate mortgage to average 2.9% in 2021 and 3.2% in 2022, according to the organization’s quarterly forecasts.
The average 30-year fixed rate mortgage since 1971 is 7.90%, according to data from Freddie Mac. In the last decade, the average rate has been 3.93%. The highest average rate recorded by Freddie Mac was 18.63% at the beginning of October 1981.
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