Mortgage rates rise from record lows — and signs are emerging that Americans are preparing to re-enter the home-buying market

The 15-year fixed-rate mortgage dropped four basis points to an average of 2.73%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.17%, down three basis points from a week ago.

Freddie Mac’s report is based on a survey of lenders, reflecting the dollar volume of conventional loans, meaning loans eligible for purchase by Freddie Mac FMCC, +1.89% or Fannie Mae FNMA, +0.59%. As a result, the survey does not reflect the rates for loans backed by other agencies, such as the Federal Housing Administration or the Department of Veterans Affairs. It also doesn’t include rates for jumbo loans.

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Rates have remained so low in large part because the Federal Reserve continues to purchase mortgage-backed securities, which provides lenders with the liquidity they need to be able to offer more loans at a lower price. Because the Fed’s bond buying is driving this ship though, not all loans are seeing the same benefits.

“The Fed’s policy on mortgage rates applies to most home loans — those that, in one way or another, have federal backing,” Holden Lewis, housing expert at NerdWallet, wrote in a report this week. “But jumbo mortgages aren’t backed by the federal government, and they haven’t been as readily available during the COVID-19 crisis because the secondary market for them has dried up.”

Until now, lenders’ loan application volume in recent months was largely dominated by homeowners looking to refinance, given the low rates. But that trend has begun to shift, according to the latest data from the Mortgage Bankers Association.

The number of refinance applications dropped, according to the mortgage industry trade group’s latest weekly mortgage applications survey. That’s in spite of the fact that rates hit a new record low.

“Despite lower rates, refinance applications dropped, as many lenders are offering higher rates for refinances than for purchase loans, and others are suspending the availability of cash-out refinance loans because of their inability to sell them to Fannie Mae and Freddie Mac,” said Mike Fratantoni, MBA’s chief economist.

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It’s been a different story when it comes to applications for home loans used to purchase a property. The volume of purchase loans increased for the third straight week, according to the MBA survey. Purchase volume is now only 19% below the level it was at in May 2019.

That’s a big shift from mid-April, when the number of purchase mortgage applications was 35% below the previous year’s figures. Application volume for purchase loans rose notably in California, Texas and Arizona, and Fratantoni noted that the data suggest pent-up demand among home buyers that could translate into stronger sales as states reopen from their coronavirus-related shutdowns.

That isn’t to say the going won’t be tough for prospective home buyers looking to secure financing. While average rates are near all-time lows, the spread of rates available in the markets varies considerably. And lenders continue to impose tough standards that would-be borrowers need to meet in order to qualify for a home loan.

“These relatively easy borrowing conditions remain available largely only to those with a hefty down payment, high credit score and seeking a plain-vanilla loan,” said Zillow ZG, +9.33% economist Matthew Speakman. “Borrowers not meeting these criteria continue to be presented with much higher-than-expected rates when filing an application.”