Even though the Federal Reserve’s recent rate hike was supposed to push all interest rates higher, long-term mortgage interest rates have yet to see any impact. Foreign market concerns caused them to slump this week, mirroring the falling stock market, according to data from mortgage backer Freddie Mac.
The average rate on a 30-year fixed-rate mortgage (FRM) fell to 3.92 percent, excluding fees, during the week ended January 14, 2016, down from 3.97 percent the previous week. The new rate is higher than last year at the same time however, when it averaged 3.66 percent.
The weekly drop was due to investor worries about flagging oil prices, China’s tumbling stock, and other foreign financial woes, Freddie Mac noted.
“Long-term Treasury yields continue to drop, dragging mortgage rates down with them,” said Freddie Mac chief economist Sean Becketti. “Turbulence in overseas financial markets is generating a flight-to-quality which benefits U.S. Treasury securities. In addition, sagging oil prices are capping inflation expectations. The net effect on the 30-year mortgage rate was a 5 basis point drop to 3.92 percent.”
The only bright spot on the financial horizon has been the U.S. economy, which added 292,000 jobs in December 2015. Yet strength at home was not enough to stave off global pressures.
Other mortgage rates also fell. The 15-year FRM average dropped to 3.19 percent, down from 3.26 percent the previous week, but is up from 2.98 percent the year before. The 5-year hybrid adjustable rate mortgage (ARM) carried an average rate of 3.01 percent, down from 3.09 percent a week earlier, but was still higher than last year’s 2.90 percent.
The drop in rates did at least contribute to a rise in mortgage applications, with the Mortgage Bankers Association reporting a 21.3 percent jump in mortgage loan application volume.
“MBA’s purchase mortgage application index reached its second highest level since May 2010 on a seasonally adjusted basis last week,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “…Bolstered by strong fourth quarter growth in jobs and continuing low rates, the results are similar to levels we saw in early December, suggesting that the purchase market’s strong finish to 2015 may be continuing.”