Investors’ worries about the tax bill working its way through Congress and how it may increase the national debt were a factor in mortgage rates’ rise over the past week, experts said.
The average rate for a 30-year, fixed-rate home loan climbed to 6.86% from 6.81% the prior week, mortgage giant Freddie Mac said on Thursday. The increase followed an identical upward move the week before that. Experts said the trend was evidence of concerns about the tax bill and a recent decision by Moody’s to downgrade the U.S. credit rating slightly.
The average on a 15-year mortgage also rose to 6.01%, up from 5.92% one week earlier.
The House passed the bill early Thursday morning and sent it to the Senate. A version of the bill floated earlier in the week would have contributed an additional $36 trillion to the federal deficit, Melissa Cohn, regional vice president of William Raveis Mortgage, said in an email. She said this, combined with the credit rating decision Moody’s announced last week, contributed to higher mortgage rates.
“My experience is that markets hate uncertainty more than anything else,” Ken Johnson, a business professor at the University of Mississippi, said in an interview.
The bill’s passage out of the House may have a calming effect, though investors still have to decide how comfortable they are with a substantial deficit increase, he said.
More volatile daily rates also rise
More government spending means issuing more debt, which tends to cause mortgage rates to rise, while the reverse, tighter control over spending, typically has the opposite effect, analyst Matthew Graham wrote on Mortgage News Daily’s website.
The pending legislation also pushed daily mortgage rates higher, with the 30-year rate reaching 7.08% on Wednesday before dropping slightly the next day, according to Mortgage News Daily. The daily rate, which tends to be more volatile than the weekly data, has been on an upward trajectory since it stood at 6.81% at the end of April.
While the latest mortgage data appears to be disappointing news for the spring homebuying market, Freddie Mac chief economist Sam Khater noted that rates remain lower than a year ago. He also pointed to the continued rise in the supply of homes for sale.
“With more inventory for buyers to choose from than the last few years, purchase application activity continues to hold up,” he said in a statement Thursday.
Applications for home loans are up 13% from a year ago, according to the Mortgage Bankers Association, though they fell 6% in the week that ended on May 16.