Mortgage Rates Plunge as Wall Street Worries About Covid-19 Resurgence

The average U.S. rate for a 30-year fixed mortgage tumbled to 3.04% this week in the biggest seven-day retreat since mid-November, Freddie Mac said in a report on Thursday.

The rate dropped nine basis points from 3.13% last week, the mortgage financier said. The average rate for a 15-year fixed home loan fell seven basis points to 2.35%, the biggest weekly drop since August.

Mortgage rates fell for the second consecutive week as investors in bonds backed by home loans worried about a resurgence in Covid-19 cases that could crimp a nascent U.S. economic recovery. New infections have jumped 38% in the last 30 days as mutations making the virus more contagious spread across the U.S.

“Rising covid-19 cases across the country and the pause on the Johnson & Johnson vaccine introduced fresh uncertainty to the market and placed renewed downward pressure on rates, helping drive them to their lowest level in a month,” said Matthew Speakman, a Zillow economist. “Despite this week’s pullback, the outlook for rates is likely still upward, barring any additional setbacks for the nation’s recovery from the pandemic.”

As new mutations spread, the U.S. is racing to vaccinate people. About 125.8 million Americans have received at least one dose of a Covid-19 vaccine, and almost a quarter of the U.S. population now is fully vaccinated, the Centers for Disease Control and Prevention said on Thursday. The seven-day average of daily vaccinations has been above 3 million almost every day in April.

With the breakneck speed of vaccinations, the drop in mortgage rates may be temporary, said Sam Khater, Freddie Mac’s chief economist. When the economy picks up, rates tend to rise.

“Despite the pause in mortgage rates recently, we expect them to increase modestly for the remainder of this year,” Khater said. “The economy is improving on the demand side and on the supply side, a variety of goods and materials remain scarce. As a result of this imbalance, pricing pressures are building and causing inflation to rise.”

Wall Street’s optimism about the economy had pushed rates to a nine-month high of 3.18% two weeks ago. While an improvement in economic data tends to push rates higher, financing costs aren’t going to spike, according to a Freddie Mac forecast released this week.

The 30-year fixed rate likely will average 3.2% in the current quarter, up from 2.9% in the first three months of the year, the forecast said. By the end of the year, the rate likely will average 3.4%, Freddie Mac said.

For all of 2021, the rate likely will average 3.2%, the mortgage financier said. That would be the second-lowest average on record, following 2020’s 3.1%, according to the data.