The rate for a 30-year fixed mortgage went down one basis point this week to 4.71 percent, ending a five-week series of gains, and the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.01 percent, up 0.4 basis points.
According to the Mortgage Bankers Association, adjustable-rate mortgages (ARMs) hit its highest average interest rate since they started tracking in 2011. Unliked fixed-rate mortgages, ARMs follow the path of short-term interest rates, currently ticking up by the Federal Reserve. Realtor.com reports that some industry analysts believe, "the compressed yield curve, the spread between rates demanded for longer-dated bonds versus shorter ones, is what’s making ARMs so unattractive." The difference between rates for fixed and ARMs has been so narrow to-date that the incentive for buyers to take out ARMs has dwindled significantly.
Mortgage rates track the 10-year U.S. Treasury note but with a lag. In the days covered by Freddie’s survey, bonds were whipsawed by geopolitical events. The announcement of a trade deal between the U.S., Canada and Mexico buoyed stocks and diminished interest in bonds on Monday. But by Tuesday, concerns about Italy’s fiscal problems rattled markets, sending investors back into the perceived safety of bonds.