Mortgage rates took a sharp turn lower last week, just one day after the Federal Reserve raised its benchmark rate.
The average 30-year fixed-rate mortgage fell to 5.22% on Thursday, down from 5.54% earlier in the week, shortly after the Fed announced another rate hike. Mortgage News Daily reported that the average rate fell even further on Friday, to 5.13%.
Rates had stayed more or less flat in the days running up to the Fed’s latest meeting, having come down from their most recent record high of just over 6% earlier in July.
The decline in the 30-year fixed-rate mortgage came on the heels of the Bureau of Economic Analysis’s latest gross domestic product report, which revealed that the U.S. economy had contracted for the second successive quarter. That is, notably, a widely accepted signal that the economy is in recession. The report found that the U.S. GDP fell 0.9% at an annualized pace for the period, according to the advance estimate. Economists had been expecting ever so slight growth of 0.3%.
The news of the economic contraction saw investors rush to the safety of the bond market, resulting in yields falling. Mortgage rates generally tend to follow the yield on the 10-year U.S. Treasury bond.
Mortgage News Daily Chief Operating Officer Matthew Graham noted that it was an “exceptionally fast drop”.
“Perhaps even more interesting (and uncommon) is the fact that mortgage rates have dropped faster than U.S. Treasury yields,” Graham said. “It’s typically the other way around as investors flock first to the most basic, risk-free bonds.”
According to Graham, the shift in rates over the previous month have led to a situation where investors greatly prefer to be holding mortgage debt with lower rates.
“In a way, mortgage investors are trying to get ahead of the game. If they’re holding mortgages at a higher rate, they will lose money if those loans refinance too quickly,” he said.
Reports elsewhere said the lower rates appear to be impacting potential homebuyers. For instance, Redfin reported seeing a slight increase in homes searches and tours at the end of last month, as rates rebounded from their recent highs.
Redfin Chief Economist Daryl Fairweather said the housing market seems to be settling into a kind of equilibrium for the moment, as demand has leveled off.
“We may still be in for some surprises when it comes to inflation and rate hikes from the Fed, but for now an ease in mortgage rates has brought some relief to buyers who were reeling from last month’s rate spike,” she said.