Mortgage Rates Rise After 6-Week Decline, Risk ‘Definitely to the Upside’ Expert Says

By Tom Ozimek
Tom Ozimek
Tom Ozimek
Reporter
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'
August 12, 2021 Updated: August 12, 2021

Mortgage rates ticked up this week following six weeks of declines, according to a Thursday report by mortgage buyer Freddie Mac, which linked the gains to strong labor market and earnings data.

The average rate for the 30-year mortgage jumped by 10 basis points to 2.87 percent from 2.77 percent last week, the report showed. The benchmark rate, which reached a peak this year of 3.18 percent in April, stood at 2.96 percent a year ago.

The rate for a 15-year rose to 2.15 percent this week from 2.10 last week, according to the report.

“Following last Friday’s strong jobs report, which revealed broad based gains in employment and wage growth, mortgage rates are moving higher after dropping for six consecutive weeks. But rates remain low,” said Freddie Mac chief economist Sam Khater, according to a post on social media.

Average mortgage rates remain historically low, at under 3 percent, helped along by the Federal Reserve’s near-zero benchmark interest rates, which hit the floor last spring as the central bank rushed to ease monetary conditions in response to the pandemic. By contrast, a series of hikes in the federal funds rate to a peak of over 19 percent in 1981 helped vault the 30-year fixed mortgage rate to an all-time high of 18.63 percent.

While the Fed’s decisions don’t drive mortgage rates as directly as they do savings accounts and CD rates, there’s an indirect impact via the central bank’s effect on the Treasury market, chiefly on the 10-year Treasury yield, which mortgage rates track closely.

“Mortgage rates reversed course this week, following on a rebound in bond yields spurred by the strong monthly employment report,” Bankrate chief financial analyst Greg McBride told The Epoch Times in an emailed statement.

America’s private employers in July added 943,000 jobs—a proxy for new hires—in a sign that the economy enjoyed a solid burst of job growth, according to the Labor Department’s jobs report, released Aug. 6.

The 10-year Treasury note yield stood at 1.23 percent on Aug. 5, rising to 1.35 percent by Aug. 11, according to federal data, reversing a falling trend that began in mid-March.

Historically, mortgage rates have also been correlated to inflation. Over the past four decades, the rate on the 30-year mortgage was lower than the rate of inflation, a dynamic that changed earlier this year when the rate of inflation jumped to an over-the-year 4.2 percent in April. That marked the first time since 1980 that inflation was running hotter than the benchmark home loan rate.

Inflation has continued to rise in the months since, with the over-the-year growth in the consumer price index (CPI) hitting 5.4 percent in July, matching the June figure, which was the highest 12-month spike since 2008.

“Mortgage rates remain sharply lower than the levels seen this spring but with a strengthening economy and higher inflation, the risk is definitely to the upside,” McBride told The Epoch Times.

While some economists have raised the alarm on inflation, Fed policymakers have insisted the upward price pressures are temporary and will wane as the supply chain dislocations associated with shutting down and then swiftly reopening the economy work their way through the system.

Still, Federal Reserve Vice Chair Richard Clarida said in a recent webcast discussion hosted by the Peterson Institute for International Economics that there are risks to the Fed’s economic outlook, including that inflation might end up running hotter and for longer than anticipated.

“I believe that the risks to my outlook for inflation are to the upside,” Clarida said.

Still, there is growing fear that the Delta variant of the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus, will set back the economic recovery. The concern is that a viral resurge could trigger another round of shutdowns and other restrictions, while discouraging people from going out and spending.

Tom Ozimek
Tom Ozimek
Reporter
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'