After climbing above 7%, the 30-year fixed mortgage rate has made a dramatic turn, with an average of 6.35% for the week ending September 11. We saw mortgage rates fall quite a bit this week, down from 6.50% last week. That is by far the largest weekly drop we’ve seen in rates this year. This recent drop in rates closely mirrors the volatile 10-year Treasury yield. This yield, in turn, decreased as fears over an impending economic downturn grew.
The 10-year Treasury yield fell to its lowest point since April. This drop came in the wake of President Donald Trump’s announcement of new tariffs, which triggered fears of a recession. Such a significant drop in Treasury yields usually spills over into mortgage rates, giving borrowers a larger cushion. As a result, many industry experts believe that a drop below 6.5% in mortgage rates may create “an important psychological effect” on potential homebuyers.
Last week’s data showed that the US labor market is not as tight, and therefore worse, than we thought. This only compounds our concerns about the impacts on economic growth. The bond market is another way of saying, in powerful terms, that the US economy may be worse off than we thought. Consequently, this has increased upside pressure on mortgage rates, driving them even lower.
National home prices have been increasing since the spring. This growing trend would mask true affordability improvements, despite the decrease in borrowing costs. In fact, just last week, mortgage applications for both purchases and refinances jumped to a three-year high. This monumental increase suggests that consumers are ready to jump at the opportunity presented by these low rates.
“For real affordability gains, we need to see both a drop in mortgage rates and much slower price growth, or even home price declines,” – Lisa Sturtevant
Erik Schmitt, an exec in Chase Home Lending, said the market is probably trying to price in a future Fed interest rate cut. He hopes this change could be adopted as early as September.
“It’s nearly impossible to predict exactly how rates will fare out in the future — mortgage rates don’t always react predictably to Fed decisions,” – Erik Schmitt
Kara Ng added insight into investor behavior, stating, “In anticipation that the Federal Reserve will cut interest rates aggressively in the coming months to support the economy, investors have driven mortgage rates lower.”
As the market adjusts to these changing dynamics, both buyers and sellers are navigating an environment marked by uncertainty and shifting economic indicators. Mortgage rates and home prices will both play a pivotal role in shaping housing market conditions in the weeks and months ahead. Their interaction is central to understanding what’s to come.