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Mortgage rates today: Tuesday, October 19, 2021
On Tuesday, October 19, 2021, the average interest rate on a 30-year fixed-rate mortgage fell two basis points to 3.033% APR. The average rate on a 15-year fixed-rate mortgage dropped five basis points to 2.251% APR and the average rate on a 5/1 adjustable-rate mortgage rose two basis points to 3.268% APR, according to rates provided to NerdWallet by Zillow. The 30-year fixed-rate mortgage is seven basis points lower compared to one week ago and five basis points higher than one year ago. A basis point is one one-hundredth of one percent. Rates are expressed as an annual percentage rate, or APR.
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Mortgage rates this week
Inconsistent economic data sent mortgage rates sorta-kinda upward in the week ending Oct. 14.
The 30-year fixed-rate mortgage averaged 3.08% APR, up eight basis points from the previous week's average.
The 15-year fixed-rate mortgage averaged 2.22% APR, unchanged from the previous week's average.
The five-year adjustable-rate mortgage averaged 3.22% APR, up two basis points from the previous week's average.
The mortgage market is made up of many people, each with their own combo of motivations, worries and expectations. Some economic expectations turned out to be more optimistic than the reality.
The September jobs report, released Oct. 8, disappointed observers, who had anticipated vigorous employment growth. Pundits had expected the report to say that the economy had expanded by about 500,000 jobs. But only 194,000 net jobs were created in September.
Mortgage rates went up anyway, on the assumption that inflation remains elevated. When prices rise fast, mortgage rates tend to go up, too. And inflation has been high all year.
But September's inflation news was mixed. Consumer prices went up a little more than expected, while wholesale prices went up a little less than expected. With the latest data, there's not a consistent economic narrative to drive mortgage rates in one direction or another.
October mortgage rates forecast
I predict that mortgage rates will rise in October. There will be ups and downs day to day, but mortgage rates will be higher at the end of the month than at the beginning of the month. (That’s assuming the debt limit will be addressed in time to avoid a government default; if that doesn't happen, the economic effects could be dire.)
Mortgage rates are likely to go up because the Federal Reserve is getting ready to end a pandemic-era policy of keeping them artificially low. Here's how the low-rate policy worked: The Fed bought billions of dollars each month of government and mortgage debt. With these purchases, the central bank ensured that there would be a colossal pool of money to lend. Consequently, mortgage rates fell. The 30-year fixed-rate mortgage dived below 3% and mostly remained there for months.
The Fed's policy of asset purchases eventually has to end. After all, it would distort financial and housing markets for the government to artificially depress mortgage rates indefinitely. At the end of its Sept. 21-22 policy meeting, the central bank announced that "a moderation in the pace of asset purchases may soon be warranted."
This announcement was akin to telling your teenager, "Now that you're old enough to get a job, I might cut your allowance soon." The kid is going to become choosier about spending. Likewise, shortly after the Fed's announcement, investors became choosier about the mortgage-backed securities they buy: They demanded higher interest rates.
Translating the Fed's words into English
Let's unpack the previously quoted excerpt from the Fed's Sept. 22 statement. The full sentence reads: "If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted."
The beginning, "If progress continues broadly as expected," refers mainly to employment and wages. "Progress" means more jobs and rising incomes.
When the Fed talks about "a moderation in the pace of asset purchases," it means that when the central bank stops buying government and mortgage debt, it won't do it cold turkey. It will reduce the purchases by several billion dollars one month, then several billion more the next month, and so on, until the purchases end.
Most people interpret "may soon be warranted" as meaning these reductions are likely to begin in early November, shortly after the Fed's next regularly scheduled meeting.
Mortgage rates will probably keep rising as the reductions draw closer. Then, as the Fed reduces its subsidy of mortgage rates month by month into next spring, rates are likely to continue rising.
If the debt limit’s not raised in time, all bets are off
Rates could fall if a new, deadlier COVID variant rakes the globe, or if the United States or an ally gets involved in a military conflict, or if the financial markets are struck by some other shock.
If Congress didn't increase the debt limit and the country went into default, the effect on mortgage rates would be unpredictable. The United States has never defaulted on its debts.
If U.S. government IOUs lost value and became untradeable, the effect on financial markets could be catastrophic, but we don't know exactly what that calamity would look like. In a government default, borrowers might find it hard or impossible to get mortgages, and rates might skyrocket temporarily.
It's also possible that the executive branch would find a workaround that would spare the financial markets from turmoil.
What happened in September
At the beginning of September, I said mortgage rates had gone up in August and would continue to rise modestly in the first half of September, then level out. I wasn't right, but I wasn't wrong, either.
Instead of rising in the first half of September, mortgage rates dropped. But after the Fed meeting, they went up sharply, erased the decline from early in the month, and kept climbing.
On Sept. 1, the 30-year fixed averaged 2.886% APR in NerdWallet's daily rate survey. On Sept. 30, it averaged 3.043%. So mortgage rates went up, as I predicted — although they didn't arrive at that destination via the route I had envisioned.