Mortgage Rates Plunge After Fed Commits to Buying Mortgage-Backed Securities

If the economy continues its recovery, low rates and pent-up demand have the summer homebuying season looking much brighter than what we saw in spring. Better-than-expected May jobs data had mortgage rates trending upward, but rates came crashing down again after the Federal Reserve recommitted to zero interest rates through 2021 and their purchase of mortgage-backed securities. Zillow reports this reaffirmation increased demand for mortgage debt, which led to the drop in rates. Because the policy appears to be long term, rates are expected to stay low. Knock on wood.

Mortgage rates fell after wild fluctuations over the last seven days, thanks in large part to the Federal Reserve reinforcing their commitment to purchase large amounts of mortgage-backed securities.

Just last week, mortgage rates appeared to be trending upward, rising quickly from all-time lows to their highest level in just under a month. This increase followed the market’s positive response to the better-than-expected May jobs data – but all that changed in the last few days. Some of this recent market optimism appeared to taper on Monday as markets considered the lasting ability of their recent rally. The big downward move in rates came on Wednesday as the Federal Reserve said they will keep overnight interest rates at zero through 2021 and, more importantly for mortgage rates, intend to maintain their recent pace of mortgage-backed security and Treasury purchases, putting an end to weekly reductions of this activity. The announcement instantly increased demand for mortgage debt and pushed rates back down to long-term lows.

With no end in sight for this Fed policy, it’s likely that mortgage rates are poised to remain low for a while.

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