Mortgage rates unfazed by Biden infrastructure plan
Upward pressure on rates still expected in the long term
April 01, 2021
The Biden administration’s push for $2 trillion in spending on infrastructure to stimulate the economy hasn’t sent mortgage rates soaring — yet.
Freddie Mac’s weekly rate survey showed that for the week ending April 1, rates averaged:
- 3.18 percent for 30-year fixed-rate mortgages, with an average 0.7 point, up just 1 basis point from last week and down from 3.33 percent a year ago.
- 2.45 percent for 15-year fixed-rate mortgages, with an average 0.6 point, unchanged from last week and down from 2.82 percent a year ago.
- 2.84 percent for 5-year Treasury-indexed hybrid adjustable-rate mortgages, with an average 0.3 point, unchanged from last week and down from 3.40 percent a year ago.
Freddie Mac’s survey tracks conventional conforming purchase loans for borrowers with excellent credit making down payments of at least 20 percent. Borrowers with less-than-perfect credit making smaller down payments can expect to be offered higher rates.
Rising Treasury yields dragging mortgage rates with them
With the economy heating up and federal budget deficits rising to levels not seen since World War II, investors are demanding higher returns on U.S. government debt. Rates on 30-year fixed-rate mortgages track 10-year Treasury yields fairly closely, maintaining a spread of around 1.5 percentage points.
Yields on the 10-year note have climbed sharply this year, from under 1 percent to a high of 1.76 percent, in anticipation of strong post-pandemic growth and perhaps even inflation. But the 10-year Treasury yield retreated this morning, falling below 1.7 percent.
The Biden administration proposes to pay for its infrastructure plan by raising taxes, but it remains to be seen whether Congress will go along with tax increases or the plan itself.
Real estate industry leaders have largely been supportive of the plan, which would invest $213 billion to build, maintain and retrofit more than 2 million affordable and energy efficient and electrified housing units, and provide $20 billion in tax credits for building and rehabbing more than 500,000 homes for low- and middle-income homebuyers.
The infrastructure plan would also attempt to tackle rising home prices and construction costs by eliminating exclusionary zoning laws such as minimum lot sizes, mandatory parking requirements, and prohibitions on multifamily housing.
Mortgage rates are still expected to rise in the long run
Although Treasury yields aren’t soaring today, that doesn’t mean they’ll stay put over the long term, said Zillow Economist Matthew Speakman.
“In general, as the economy continues to thaw from its pandemic-induced freeze and government spending increases, upward pressure on mortgage rates should remain,” Speakman said in a statement. “A key test of the economy’s recovery efforts will come from the March job figures which are due to be released Friday. A strong report would reinforce the notion that the economy is primed for strong growth in the months to come and would likely result in more upward rate movements.”
A recent CNBC poll of more than 100 financial experts found more than 60 percent of them think the 10-year is headed above 2 percent by the end of this year.
Many economic forecasters expect mortgage rates will follow, although their predictions are all over the map, Windermere Chief Economist Matthew Gardner noted in a recent Inman column.
Gardner expects rates on 30-year fixed-rate loans to hit 3.6 percent by the fourth quarter of 2021, and surpass 4 percent in early to mid 2022. But, as Gardner notes, most forecasters see rates rising more gradually.