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May mortgage rates remain low, but June could see increases

The average 30-year fixed-rate residential mortgage rate fell to its lowest point so far this year during the final week of May, according to Freddie Mac's Primary Mortgage Market Survey.
5/31/2017 5:06:09 PM

The average 30-year fixed-rate residential mortgage rate fell to its lowest point so far this year during the final week of May, according to Freddie Mac's Primary Mortgage Market Survey. After a month of hovering just above the 4% mark, it finally fell to 3.95%. A couple primary factors were at play in precipitating this movement. 

Investors' waning confidence in Trump's proposed tax cuts

According to Freddie Mac Chief Economist Sean Becketti, the drop from 4.02% to 3.95% was a result of a delayed reaction to falling Treasury yields seen the previous week. Reuters reported Treasury yields fell to the lowest level seen all month on May 18, following investor concerns regarding tax cuts that President Donald Trump had promised to make.

Trump's relationship with the Russians has contributed to this concern. As new pieces of information comes to light, much of the media's focus is on improper dealings with the Kremlin. Some investors see the Russia story as competition for the new administration's attention.

"The risk going forward is that this thing goes on and on and we don't have a resolution, which means the new administration is not able to work on its tax initiatives and regulatory reform," Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York, told Reuters.

The federal funds rate didn't increase in May, but it might in June

The Federal Open Market Committee met for the third time in 2017 at the beginning of May. Though the Fed unanimously voted to keep the federal funds rate where it was - a range of between 0.75% and 1% - there's reason to believe they could increase it during their next meeting: June 13-14.

Minutes from the May meeting, released on May 24, noted that most voting members agreed that another rate hike in the near future would be a good idea. CNN reported that this didn't surprise investors, as many of them were already predicting a June increase.

The June rate increase would be the third for 2017 and the fourth since the Great Recession. The shortening gap between increases demonstrates the Fed's confidence in the economy and its future growth.

Economic indicators released since the conclusion of the May FOMC meeting have supported this notion. Unemployment in April was 4.4%, a 0.6 percentage point decrease from the start of the year. Additionally, the Producer Price Index, released for April on May 11, showed that producer prices increased 0.5%, an unexpectedly large jump following a particularly weak March. Econoday had expected prices to reach 0.3%, at most.

Both of these reports bolster the Fed's case for increasing the rate in June. If they decide to vote for this move, it will likely push residential mortgage rates higher.

Where June mortgage rates will go

As peak homebuying season approaches, more homebuyers will be on the lookout for low rates and affordable home purchases. Luckily, few industry professionals predict increasing mortgage rates in the near future. According to Bankrate's Rate Trend Index, the majority - 60% - believe rates will stay more or less unchanged in the first week of June.

However, nearly one-third disagreed, stating that rates could increase. Considering the majority opinion that the Fed will increase rates, some speculate that rising mortgage rates won't be too far off.

"The long-term trend toward higher interest rates will reassert itself," Holden Lewis, an assistant managing editor at Bankrate.com, noted in response to the survey.  "The Federal Reserve will continue to raise short-term rates, and in December it will start shrinking its balance sheet. That will send mortgage rates higher, sooner or later."

Homebuyers hoping to lock in a low rate this summer may want to act fast. Though rates fell in May, there's no guarantee that they will follow this trend come June.

Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2015 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.