Mortgage rates surge higher as COVID-19 vaccines and stimulus roll out

The 15-year fixed-rate mortgage, meanwhile, only increased
seven basis points to an average of 2.23%. The 5-year Treasury-indexed hybrid
adjustable-rate mortgage averaged 3.12%, up 37 basis points from the week
prior.

“As Treasury yields have risen, it is putting pressure on
mortgage rates to move up,” Sam Khater, Freddie Mac’s chief economist, said in
the report.

Historically, mortgage rates roughly follow the direction of
long-term bond yields, including the yield on the 10-year Treasury. Throughout
the pandemic, that relationship weakened from time to time, largely due to
capacity restraints within the mortgage industry.

Over the past week, the 10-year Treasury notched its longest streak of daily increases in yield since 2017. Yields have risen as investors expect President-elect Joe Biden and a Democrat-controlled Congress to pass additional stimulus amid the COVID-19 pandemic.

“The economy is currently still weak, but the incoming administration with the support of Congress seems likely to issue sizable additional stimulus, which will help offset ongoing virus-related income and spending disruption,” said Danielle Hale, the chief economist at Realtor.com. “Additionally, vaccines and the recently approved stimulus continue to roll out, giving consumers and investors a reason to expect brighter things to come in this new year.”

But a “prolonged upward spike is far from inevitable,” warned Matthew Speakman, an economist with Zillow ZG, +1.31%. Many have criticized the U.S. vaccine rollout thus far for being too slow, and concerns remain about whether the government’s stockpile will be sufficient in the long run.

Any major hiccups in lawmakers’ efforts to speed up the
country’s recovery from the pandemic could send rates lower once again.