(Paul J. Richards/AFP/Getty Images)
Mortgage rates fell for the second week in a row ahead of the Federal Reserve’s July meeting.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 3.92 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.96 percent a week ago and 3.48 percent a year ago.
The 15-year fixed-rate average dropped to 3.2 percent with an average 0.5 point. It was 3.23 percent a week ago and 2.78 percent a year ago. The five-year adjustable rate average fell to 3.18 percent with an average 0.5 point. It was 3.21 percent a week ago and 2.78 percent a year ago.
The Federal Reserve left its benchmark rate unchanged after its meeting this week but signaled that it would start rolling back its balance sheet “relatively soon.” The announcement came too late in the week to factor into Freddie Mac’s survey. The government-backed mortgage-backer aggregates current rates weekly from 125 lenders from across the country to come up with national average mortgage rates.
Any shrinking of the central bank’s $4.5 trillion portfolio is likely going to have an impact on mortgage rates. The Fed has said it would reduce its holdings gradually, but too quick of a sell-off could send rates skyrocketing. Back in 2013 when then-Fed chairman Ben Bernanke testified before Congress about tapering the bond-buying program, the “taper tantrum” fueled a rapid rise in rates.
Michael Fratantoni, Mortgage Bankers Association chief economist, expects the Fed to announce in September that it will begin unwinding its balance sheet in October. He also predicts another rate increase later this year.
“The job market is tight,” Fratantoni said. “Many employers are finding it increasingly challenging to fill open positions. And yet wage growth and price inflation remain low. We agree with the Fed’s expectation that inflation will increase later this year and into next, and this will prompt further increases in the Fed’s short-term target, with the next hike most likely coming in December.”
Despite the news out of the Fed, most of the experts surveyed by Bankrate.com, which puts out a weekly mortgage rate trend index, say rates will remain relatively stable in the coming week.
“Even with the dial back on their balance sheet beginning ‘relatively soon,’ the Fed’s concerns about low inflation will keep a lid on mortgage rates for now,” said Greg McBride, chief financial analyst at Bankrate.com.
Meanwhile, mortgage applications were flat last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 0.4 percent. The refinance index rose 3 percent, while the purchase index fell 2 percent.
The refinance share of mortgage activity accounted for 46 percent of all applications.