The average 30-year fixed rate mortgage (FRM) rate decreased to 4.04% from its recent uptick during the week ending March 24, 2017. The 15-year FRM rate also dropped back down to 3.18%. 

Mortgage rates saw a recent hike when the Federal Reserve (the Fed) raised the short-term rate by 0.25% on March 15, 2017.

Further, much like the “taper tantrum” in 2013 when the the Fed announced it was ending the addition of money to the banking system, the economy is seeing a “Trump jump” due to post-election investor activity — a trend that will lose steam and likely result in a slow decline in rates going into the 2017-2018 recessionary period.

Prior to recent rate jumps, FRM rates remained relatively low due to bond market activity and near-zero short-term borrowing rates set by the the Fed. The Fed raised the short-term rate by 0.25% on December 17, 2015 after seven years at essentially zero. However, the raise had little effect on FRM rates.

The reason: mortgage rates are tied to the bond market and move in tandem with the 10-year Treasury Note (T-Note) rate. Until now, investors have been placing large sums in bonds and on deposit with the Fed for safekeeping while investment opportunities are scarce and the U.S. dollar strengthens in comparison to other currencies. These excess funds have kept FRM rates low and steady, preventing further decreases needed to spur mortgage originations and, subsequently, increase home sales volume.

As of March 24, 2017, the 10-year T-Note rate is at 2.41%, down from the prior week.

Lenders use the 10-year T-Note to determine a homebuyer’s mortgage rate. The difference between the note rate and the 10-year T-Note rate represents the lender’s risk premium. The premium accounts for potential losses due to mortgage defaults on less than 20% down payment transactions, covered by private mortgage insurance (PMI).

The current spread between the 10-year T-Note and 30-year FRM rate increased to 1.63%, above the historical difference of 1.5%. However, the long-term trend shows the spread between the two rates has remained elevated and will likely continue to remain high, indicating higher mortgage rates for homebuyers and refinancers, as well as higher lender profits. These overpriced mortgages – along with the deceleration in home sales volume since October 2015 due to excessive home pricing – are contributing to the reduction in purchase-assist originations and, as a result, the current slowdown in residential construction.

As of February 2017, the average rate on adjustable rate mortgages (ARMs) dropped back down to 3.16%, returning to levels seen before the recent presidential election and still above its low point of 2.49% experienced in May 2013. ARM use has gradually risen over the past year due to home prices rising faster than the rate of pay, causing buyers to take on more risk to extend their purchasing power. The Fed’s short-term interest rate hike at the end of 2015 caused ARM rates to rise proportionately – around 0.25% – and they will continue to rise with FRM rates. 

Expect mortgage rates – and payments on consumer debt for cars and housing – to now experience upward pressure from the following related economic factors:

  • a net drop in tax revenue due to tax rate reductions and privatization of government programs using tax incentives;
  • an increase in consumer demand for mortgage lending due to deregulation of mortgage lending;
  • a sharp rise in the employment rate and wages due to a congressional shift from fiscal austerity to stimulus through infrastructure and military growth;
  • a raise in demand for capital from the bond market due to greatly increased federal and private borrowing spent on new long-term government programs;
  • inflationary expectations by both the bond market and the Fed  due to expansion of government and private spending on federal programs and import trade barriers; and
  • corporate demand for money to keep pace with increased demand for goods resulting from increased government spending, tightened employment and cross-border trade restrictions.

 

Updated 03/24/2017. Original copy released 03/13/2012.

Click the link to go directly to a chart, or browse the charts by scrolling below.

1. 30-year fixed rate mortgage (FRM) rate, weekly — Chart update 03/24/17
2. 30-year FRM rate, monthly — Chart update 03/03/17
3. 15-year FRM rate — Chart update 03/24/17
4. 5/1 adjustable rate mortgage (ARM) rate — Chart update 03/03/17
5. 10-year Treasury note rate — Chart update 03/24/17
6. Combined FRM and 10-year Treasury note rates — Chart update 03/24/17
7. 91-day Treasury bill rate — Chart update 02/24/17
8. 3-month Treasury bill — Chart update 02/17/17
9. 6-month Treasury bill — Chart update 02/17/17
10. Treasury Securities average yield — Chart update 02/03/17
11. 12-month Treasury average — Chart update 02/17/17
12. Cost of Funds Index — Chart update 02/24/17
13. London Inter-Bank Offered rate (LIBOR) — Chart update 02/24/17
14. Applicable federal rates — Chart update 12/01/16
15. Private lender section 32 Reg-Z loans — Chart update 03/24/17

Average 30-Year Conventional Commitment Rate

Chart: 30-year FRM, weekly

Chart update 03/24/17

Current
03/24/17
4.04%

Month ago
02/24/17
3.97%
Year ago
03/25/16
3.72%
The average 30-year FRM rate in California is provided by Bankrate.com.

Average 30-Year Conventional Commitment Rate: 1991-present

Chart: 30-year FRM

Chart update 03/03/17
Feb 2017
Average
3.99%
Jan 2017
Average
4.00%
Feb 2016
Average
3.70%

Average 15-Year Conventional Commitment Rate

Chart: 15-year FRM
Chart update 03/24/17
Current
03/24/17
3.18%
Month ago
02/24/17
3.14%
Year ago
03/25/16
2.81%
The average 15-year FRM rate in California is provided by Bankrate.com.
More information:

5/1 Adjustable Rate Mortgage (ARM) Average Rate

Chart: ARM average
Chart update 03/03/17
Feb 2017
3.16%
Jan 2017
3.32%
Feb 2016
3.25%
The 5/1 average adjustable rate mortgage (ARM) rate shows the average rate for the first five years after origination. After the initial five-year period, the ARM rate is adjusted annually based on an index figure, such as a certain Treasury Bill rate (which reflects Federal Reserve rate movements) or the London Inter-Bank Offered Rate (LIBOR). Beginning January 2016, the average ARM rate in California is provided by Bankrate.com. Prior to January 2016, the average ARM rate is provided by Freddie Mac’s survey of the Western Region of the U.S.

10-Year T-Notes – Average Market Yield

Chart: 10-year T Note
Chart update 03/24/17
Current
03/24/17
2.41%
Month ago
02/24/17
2.32%
Year ago
03/25/16
1.91%
This rate is a leading indicator of the direction of future Freddie Mac rates. The 10-year rate historically runs closer to 4% during a stable money market. The rate is influenced by worldwide demand for the dollar and anticipated future domestic inflation.

Combined Average 15-, 30-Year Conventional Rates and 10-Year Treasury Note Average

Chart: Combo rates

Chart update 03/24/17
Avg 15-Year
Feb 2017
3.15%
Avg 30-Year
Feb 2017
3.99%
Avg 10-Year T-Note
Feb 2017
2.42%
The average 15- and 30-year conventional commitment rates are the rates at which a lender commits to lend mortgage money in the United States-West/California for the duration of the life of each respective mortgage as reported by Freddie Mac. The green line reflects the 10-Year Treasury Note Average, a leading indicator of the direction of future Freddie Mac rates. It is comprised of the level of worldwide demand for the dollar and anticipated future domestic inflation.
More information:

91-Day Treasury Bill – Average Auction Rate

Chart: 91-day T Bill

Chart update 02/24/17
Current
02/23/17
0.54%
Month Ago
01/26/17
0.51%
Year Ago
02/25/16
0.32%
This rate determines the minimum interest rate the seller must use in a delayed §1031 transaction and report when not receiving interest on §1031 monies held by a facilitator/accommodator. This rate also sets the amount of the ordinary income the facilitator/accommodator must report.

3-Month Treasury Bill

Chart: 3-month Treasury Bill

Chart update 02/17/17
Jan 2017
0.51%
Dec 2016
0.51%
Jan 2016
0.26%
The 3-Month Treasury Bill is the rate managed by the Federal Reserve through the Fed Funds Rate as the base price of borrowing money in the short-term. It is used in determining the yield spread, which predicts the likelihood of a recession one year forward. The posted rate is the monthly average for the listed month. Rates are released with a 1-2 month reporting delay.

6-Month Treasury Bill

Chart: 6-month Treasury Bill

Chart update 02/17/17
 Jan 2017
0.61%
Dec 2016
0.63%
Jan 2016
0.43%

The six-month T-Bill rate is one of several indices used by lenders to periodically adjust the adjustable rate mortgage (ARM) rate. The adjusted rate equals the indexed rate (at the time of adjustment or an average of several prior rates) plus the lender’s profit margin. The posted rate is the monthly average for the listed month. Rates are released with a 1-2 month reporting delay.

Treasury Securities Average Yield — 1-Year Constant Maturity

Chart: Treasury Securities

Chart update 02/03/17
Jan 2017
0.83%
Dec 2016
0.87%
Jan 2016
0.54%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate.The ARM interest rate equals T-Bill yield, plus the lender’s profit margin. The index is an average of T-Bill yields with maturities adjusted to one year.

12-Month Treasury Average

Chart: 12-month Treasury Average

Chart update 02/17/17
Jan 2017
0.64%
Dec 2016
0.61%
Jan 2016
0.35%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate. This figure is an average of the one-year T-Bill rates for the past 12 months.The ARM interest rate equals the 12-Month Treasury Average yield plus the lender’s profit margin. There is a one-two month lag in data reporting for the 12-Month Treasury Average.

Cost of Funds Index (COFI) (11th FHLBB District)

Chart: Cost of Funds

Chart update 02/24/17
Jan 2017
0.60%
Dec 2016
0.60%
Jan 2016
0.66%
This index is one of several indexes used by lenders to periodically adjust the interest rate on an ARM note. The ARM interest rate equals Cost of Funds Index, plus the lender’s profit margin. Current index reflects the cost of funds two months’ prior in the United States-West.

London Inter-Bank Offered Rate

Chart: LIBOR

Chart update 02/24/17
1 Month
0.78%
6 Month
1.36%
1 Year
1.74%
This index is one of several indexes used by lenders as stated in their ARM note to periodically adjust the note’s interest rate.The ARM interest rate equals the LIBOR rate plus the lender’s profit margin. The rate is set by the banks in London, England.

Applicable Federal Rates

Chart: App Fed Rates

Chart update 12/01/16
Short (3 years or less)
Dec 2016
0.55%
Medium (3 to 9 years)
Dec 2016
1.09%
Long (9+ years)
Dec 2016
1.66%
These rates determine minimum interest yield reportable on carryback financing. The AFR category is determined by the carryback due date. *Rates are for monthly payments.

Rate Analysis for Private Lender Section 32 Reg-Z Loans

Data courtesy Federal Reserve

Chart update 03/24/17

Month* 6-Month 1-Year 2-Year 3-Year 5-Year 7-Year
Feb 2017 0.65% 0.82% 1.20% 1.47% 1.90% 2.22%
On junior trust deed loans, a margin of 5 – 8% points is added to the Index Figure (Cost-of-Funds Rate) for the maturity date of a Treasury bill equal in length to the payoff date of the loan to set the Section 32 threshold for term limitations. With this in mind, if the percentage of the total loan amount represented by points and fees is greater than the applicable Federal Securities Rate plus ten percentage points, additional disclosures, limitations and prohibitions are triggered by Regulation Z (Reg-Z) Section 32. [See RPI Form 223-1: Points and Fees Test and Form 223: Supplemental Truth-in-Lending Section 32 Disclosure]
Related articles: