The average US rate for a 30-year fixed mortgage fell to 3.33% this week, according to Freddie mac, as Federal ReserveThe bond buying program created demand for mortgage-backed securities.
Combined with the previous week’s decline, it was the largest two-week decline since December 2008 when the Fed shocked the financial world with its very first round of mortgage-backed securities. At the time, the Fed announced $ 600 billion in purchases of MBS. This time the Fed said in a March 23 statement that its budget was “unlimited.”
The Fed relaunched its bond purchase program on March 15 in an attempt to grease the cogs of the credit markets and prevent the type of credit crunch that devastated the mortgage industry more than a year ago. a decade.
The 17 basis point drop this week in the 30-year average fixed rate indicates that it works.
“This decline reflects the improvement in liquidity and market sentiment,” said Sam Khater, chief economist at Freddie Mac.
In March, lenders’ initial response to the financial uncertainty caused by the COVID-19 pandemic was to push rates up even as the benchmark yield on T-bills fell – adding a buffer known in the industry as a risk premium.
Generally, mortgage rates remain in a predictable range above the 10-year Treasury yield. Between 2015 and 2019, the average difference was 1.7%, according to calculations by HousingWire using the Freddie Mac rate and a weekly average for T-bills. When the margin exceeds this threshold, it means that the lenders are nervous.
When the average mortgage rate peaked in nine weeks in mid-March, the spread was 2.66%, the highest since January 2009.
This week it is 2.63%, based on Tuesday’s Treasury yield. This shows that rates can fall further.
Even with falling mortgage rates, housing demand has eroded as Americans retreat in response to state mandates to stay at home to prevent the spread of COVID-19, said Khater.
Applications for home loans fell 24 percent last week from a year earlier, according to a report released Wednesday by the Mortgage Bankers Association.
“The demand from home buyers has declined in response to current economic conditions,” said Khater. “The good news is that the current economic recovery is underway and will provide support to consumers and businesses. “
The $ 2 trillion bailout adopted Congress last week will provide business loans and increase unemployment benefits by $ 600 a week to completely replace wages for four months.
In addition, most Americans will receive a check in the coming weeks for around $ 1,200 to help pay for their expenses while staying at home to help stop the spread of the virus.
The average 15-year fixed-rate mortgage rate was 2.82% this week, compared to 2.92% last week, and the average rate on a 5-year Treasury indexed loan was 3.40%, against 3.34%, said Freddie Mac.