Mortgage Rates Rise Above Three Percent – Freddie MAC Primary Mortgage Market Survey for June 24, 2021
Mortgage rates have risen above three percent for the first time in ten weeks. As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year. For those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.

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Week of June 21, 2021 in Review
Inflation once again made headlines, as the latest Personal Consumption Expenditures report showed that it continues to rise. Several Fed members also made important comments about inflation, while home sales were hindered by low inventory.
The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in May, while year over year PCE increased from 3.6% to 3.9%. While this annual reading was the hottest in 13 years, it was beneath expectations of above 4%. Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was also on the rise. Rising inflation is crucial to monitor when it comes to Mortgage Bonds and the home loan rates tied to them. Don’t miss the important explanation below.
Low inventory continues to hinder home sales, with sales of existing homes dropping 0.9% in May. There were 1.23 million homes for sale at the end of May, which is up 7% from April but down almost 21% year over year. The low level of homes helped them sell quickly, with homes only on the market for 17 days on average.
Sales of new homes were also down 6% from April to May, again in large part due to low inventory. Factoring in the revisions to April’s sales, the decline was actually much worse at 12%. The median home price for both new and existing homes moved higher in May, but it’s important to note that this is not the same as appreciation, despite what the media may report. Read on for important details about this.
Initial Jobless Claims ticked lower by 7,000 in the latest week, but the number of people filing for benefits for the first time remains elevated at 411,000. The number of people continuing to receive regular benefits fell by 144,000 to 3.4 million while 14.8 million individuals are still receiving benefits throughout all programs.
Also of note, last week’s 7-year Note Auction was met with above average demand. The bid to cover of 2.36 was above the one-year average of 2.34. Direct and indirect bidders took 81.3% of the auction compared to 77.5% in the previous 12. And the third estimate of first quarter Gross Domestic Product (GDP) showed a gain of 6.4% on an annualized basis, which was in line with expectations.
Inflation Hot But Below Expectations
The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in May, which was beneath estimates of 0.6%. Year over year, the index increased from 3.6% to 3.9%, and while this is the hottest reading in 13 years, it was also beneath expectations of above 4%.
Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.5% for the month. Year over year, Core PCE increased from 3.1% to 3.4%. These figures were as expected.
This rise in inflation has been expected because the readings for the more current months are replacing the readings from 2020 when much of the economy was shut down due to the pandemic. Even still, rising inflation is significant because inflation reduces the value of fixed investments. This includes Mortgage Bonds, to which home loan rates are inversely tied. In other words, rising inflation can cause Mortgage Bonds to worsen or move lower and home loan rates to rise. Though many factors impact the markets, I will continue to monitor the data regarding inflation this summer.
Of note within the PCE report, personal income was down 2%, which was slightly better than expectations, while personal spending was unchanged and lighter than estimates of 0.4%.
With respect to income, the most important component is wages/salaries for private industries. They rose 0.8% after two straight months of 1.1% gains, and they are also up by almost 16% year over year. Private sector employees make up a large portion of the homeownership rate, and with private sector wages growing at such a rapid pace, this does bode well for affordability even with the appreciation levels we’ve seen.
Fed’s Inflation Chatter
Several Fed members made headlines last week with comments about inflation. New York Fed President John Williams noted that he thinks most of the inflation we are seeing is due to the economy opening back up and a lack of supply, which he thinks will come back on line as people get back to work.
Fed Chair Jerome Powell also said that recent price gains mostly reflected temporary supply bottlenecks. He explained that the sharp drop in prices last spring at the onset of the pandemic makes inflation figures look much larger now compared with a year ago. This supports his stance that most of the inflation will be transitory. He did acknowledge that the effects of inflation “have been larger than we expected and they may turn out to be more persistent than we expected.”
Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman also said they believe recent price increases will prove temporary, but they also feel it may take longer than anticipated for them to fade. In an interview with NPR, Bostic redefined for us his thoughts on transitory, saying that inflation may last six to nine months rather than the two to three months they expected initially.
Low Inventory Hinders May’s Existing Home Sales
Existing Home Sales, which measure closings on existing homes, were down 0.9% in May. However, on an annual basis, they are up nearly 45% compared to May of 2020, which makes sense as the pandemic and shutdowns were in full swing this time last year.
Inventory remains a huge challenge for buyers, though it did improve from April to May. There were 1.23 million homes for sale at the end of May, which is up 7% from April but down almost 21% year over year. The low level of homes helped them sell quickly, with homes only on the market for 17 days on average.
The median home price was reported at $350,300, which is a record high and up 24% year over year. Note that despite what the media is reporting, the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it, and the rise is due to the amount of higher-end homes that are selling.
Sales on the low end were down, while sales of homes between $500,000 to $750,000 were up 122%, homes between $750,000 to $1 million were up 178%, and homes above $1 million were up 245%. Real appreciation is around 13%, and while that is still a high number, it is well beneath the 24% rise in the median home price.
And speaking to affordability, first-time homebuyers have remained at 31% for three out of the last four months, which is a decent level considering the stiff competition for homes on the lower end and the lack of inventory. Also of note, cash buyers decreased from 25% to 23% while investors purchased 17% of homes, which remained stable from April’s report.
New Home Sales Also Decline In May

New Home Sales, which measure signed contracts on new homes, were down 6% from April to May. Factoring in the revisions to April’s sales, this figure is actually worse, totaling a 12% decline in May.
Inventory again remains a challenge, as there were only 330,000 new homes for sale at the end of May. This represents a 5.1 months’ supply of homes.
The median home price was reported at $374,400, which is up 18% from last year. Again, the median price is not the same as appreciation. Builders are not building many lower-priced homes as there is not enough profit margin due to the costs and shortage of lumber and other materials. As a result, the median home price is being dragged higher.
Initial Jobless Claims Tick Lower But Remain Elevated

The number of people filing for unemployment benefits decreased by 7,000 in the latest week, as Initial Jobless Claims fell to 411,000. While any decline is positive, these claims are still more elevated than we’d hope for at this stage in our recovery. California (+65K), Pennsylvania (+44K), and Illinois (+24K) reported the largest number of claims.
The number of people continuing to receive regular benefits also fell by 144,000 to 3.4 million. While this is a pandemic low, it is also still elevated.
Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) increased by 68,000 combined.
All in all, 14.8 million individuals are still receiving benefits throughout all programs, which is near unchanged from the previous week.
What to Look for This Week
Reports from the housing, manufacturing and labor sectors will dominate the headlines this week. Housing news comes first on Tuesday, as we’ll get an update on home price appreciation in April from the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index. Pending Home Sales for May follows on Wednesday.
Wednesday also kicks off the first of the week’s jobs reports, when the ADP Employment Report for June will give us an update on private payrolls. There will also be regional manufacturing news when the Chicago PMI for June is reported.
Thursday brings the latest weekly Jobless Claims data, as usual, plus an update on manufacturing with the ISM Index for June.
Ending the week on Friday we will see the highly anticipated Bureau of Labor Statistics Jobs Report for June, which includes Non-farm Payrolls and the Unemployment Rate.
Technical Picture
Mortgage Bonds continue to trade in a wide range between support at 102.734 and overhead resistance at the 25-day Moving Average. We have to be on guard when Bonds are trading in such a wide range. Prices are susceptible to whipsaws and big price movements because support is substantially lower.
