Mortgage Rates Fall Below 7% In Rare Sign Of Relief For Homebuyers

Mortgage rates dipped to their lowest level last week since early February, according to the Mortgage Bankers Association’s weekly survey, a welcome milestone for prospective homebuyers plagued by high borrowing costs that have surged in the past two years.

KEY FACTS

The average 30-year fixed rate last week was 6.84% for home loans less than $766,550, according to the poll of American mortgage brokers, down 18 basis points from last week’s 7.02% and dipping below 7% for the first time since the first week of February.

Mike Fratantoni, the Mortgage Bankers Association’s chief economist, explained in a statement the downward move in mortgage rates came as recent data painted a far more encouraging economic picture for the Federal Reserve to bring down interest rates.

That would likely cause mortgage rates to fall as the central bank’s rates strongly influence the rates set by lenders.

Homebuying activity ramped up as mortgage rates declined, as the Mortgage Bankers Association reported a 7% increase in national mortgage applications, though Fratantoni noted total volume is down about 11% year-over-year.

KEY BACKGROUND

Mortgage rates remain significantly elevated from where they stood for much of the last two decades. The average 30-year fixed mortgage rate was about 3.8% in March 2022 and 3% in March 2021, according to federal mortgage lender Freddie Mac, with the low interest rates coming as the Fed held its target federal funds rate at close to zero in its bid to stimulate the economy in the wake of the Covid-19 pandemic. Still, mortgage rates are significantly below their 23-year peak of 7.8% hit last October. Though individual brokers actually set mortgage rates for individual applicants, the Fed’s monetary policy heavily influences mortgage rates as its target federal funds rate determines the costs at which banks can borrow from one another, setting a standard for the cost of borrowing throughout the economy.

CONTRA

Last week’s monthly jobs update revealed the highest unemployment rate since January 2022 and lower job growth than previously reported, while Tuesday’s inflation report indicated a significant decline in inflation in the services sector. Though some experts, such as Fratantoni, viewed the weak spots in the reports as a boon, the market remains unconvinced, as 10-year Treasury yields are up as hopes for an interest rate cut in the first half of this year declined.

SURPRISING FACT

The spread between mortgage rates (about 7%) and U.S, government bond yields (about 4.2%) sits at close to its highest level in more than three decades, an indication that institutional investors are less attracted to the prospect of holding riskier mortgages when safer government bonds are available at high yields.

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Source: forbes.com