While analysts fretted over the high rate of inflation in the U.S. economy, mortgage rates once again decreased.
The 30-year fixed-rate mortgage averaged 2.94% for the week ending May 13, down two basis points from the previous week, Freddie Mac FMCC, +3.37% reported Thursday. The benchmark mortgage rate has fallen since the end of March, when it reached the highest level since June of last year, and has remained under 3% for a month now.
The 15-year fixed-rate mortgage, meanwhile, fell 4 basis points to an average of 2.26%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.59%, down 11 basis points from the previous week.
“Low rates offer homeowners an opportunity to lower their monthly payment by refinancing, and our most recent research shows that many borrowers, especially Black and Hispanic borrowers, who could benefit from refinancing still aren’t pursuing the option,” Freddie Mac chief economist Sam Khater said in the report.
“ ‘The last time inflation surged this high in one month Freddie Mac’s 30-year mortgage rate was 16.9%.’ ”
The low-rate environment is also a boon to those looking to buy a home at a time when home prices are being pressured higher by strong demand and a lack of supply in the market.
The fall in mortgage rates came as somewhat of a surprise to market observers, given reports this week that pointed to a growing rate of inflation in the economy.
The price of consumer goods hit their highest level in 13 years in April, the U.S. Consumer Price Index released on Wednesday showed. A separate report released Thursday morning showed similar inflationary pressure on wholesale prices.
“The last time inflation surged this high in one month Freddie Mac’s 30-year mortgage rate was 16.9%,” said Danielle Hale, chief economist at Realtor.com.
“While I don’t expect double-digit mortgage rates any time soon, I do expect mortgage rates to follow Treasury yields higher as the combination of abundant supply and concerns about inflation, mean that investors expect higher returns,” she added.
“ ‘In theory, a steep uptick in inflation would force the central bank to tighten policy by hiking interest rates or slowing the pace of bond purchases.’ ”
The yield on the 10-year Treasury note TMUBMUSD10Y, 1.636% has risen nearly 11 basis points over the past five days.
The Federal Reserve has largely dismissed concerns about inflation. In many cases, rising prices appear to be a pandemic-related fluke. For instance, the cost of airfare saw a record increase, which could be a reflection of people’s suddenly renewed interest in traveling as vaccinations roll out.
But if April’s inflation readings continue for a more extended period of time, the nation’s central bank will likely respond. And that could affect mortgage rates.
“In theory, a steep uptick in inflation would force the central bank to tighten policy by hiking interest rates or slowing the pace of bond purchases,” said Matthew Speakman, an economist with Zillow Z, +4.23% ZG, +4.40%.
Any shifts away from the Fed’s current outlook, he added, “will place more upward pressure on mortgage rates.”