Just a day after the Federal Reserve raised its benchmark rate, mortgage rates fell sharply.
The average rate on the popular 30-year fixed-rate mortgage fell to 5.22% on Thursday from 5.54% on Wednesday, when the Fed announced its latest rate hike, according to Daily Mortgage News. The rate fell further on Friday to 5.13%.
Rates hadn’t budged much in the days leading up to the Fed’s meeting earlier this week, but had slowly reached their most recent high in mid-June, when the 30-year fixed rate briefly crossed 6 %.
A sign is displayed in front of a home for sale on July 14, 2022 in San Francisco, California. The number of homes for sale in the United States rose 2% in June for the first time since 2019.
Justin Sullivan | Getty Images
Thursday’s decline also came on the heels of the Bureau of Economic Analysis’ gross domestic product report, which showed the U.S. economy contracted for the second straight quarter. This is a widely accepted signal of recession. GDP fell 0.9% at an annualized rate for the period, according to the preliminary estimate. Economists polled by Dow Jones had forecast growth of 0.3%.
After the news, investors rushed to the relative safety of the bond market, causing yields to plummet. Mortgage rates roughly track the yield on 10-year US Treasury bonds.
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“It’s an exceptionally fast fall!” wrote Matthew Graham, COO of Mortgage News Daily. “Perhaps even more interesting (and rare) is the fact that mortgage rates have fallen faster than US Treasury yields. It’s usually the other way around, as investors flock to the most basic bonds first. and without risk.”
Graham said the overall change in rates over the past month has created a situation where investors largely prefer to hold mortgage debt at lower rates.
“In a way, mortgage investors are trying to get ahead. If they hold mortgages at a higher rate, they will lose money if those loans refinance too quickly,” he said. added.
The question now is whether the market is in a new range and whether rates will settle where they are now.
“If rates reverse, volatility could be just as significant the other way,” Graham warned. He also noted that mortgage rates could fall further if economic data continues to be gloomy and inflation moderates.
Already, the rate cut seems to be having a slight impact on potential buyers. Real estate brokerage red fin just reported a slight increase in searches and home visits over the past month as rates fell from recent highs.
“The housing market appears to be balancing out now that demand has stabilized,” Redfin chief economist Daryl Fairweather said in a statement. “We could still have surprises on inflation and rate hikes from the Fed, but for now, an easing in mortgage rates has brought some relief to buyers who were reeling from the shock of last month’s rate hike.”
The increase in buyer interest, however, did not translate into new contracts or sales. The supply of homes for sale is slowly increasing and more sellers are reported to be lowering their asking prices.