Unexpected Mortgage Rate Plunge: Last week, the interest rate on the most common type of U.S. residential mortgage saw a significant and unexpected plunge, the most substantial drop in nearly 16 months. This unexpected shift was driven by a surprising rally in the Treasury market, which had the knock-on effect of pulling down the benchmark yields that dictate home loan costs.
The Mortgage Bankers Association (MBA) delivered a surprising announcement on Wednesday, revealing that the average contract rate on a 30-year fixed-rate mortgage took a surprising dip in the week ending Nov. 3. It fell by a quarter percentage point to 7.61%, reaching its lowest point in about a month.
Notably, this marked the most significant weekly drop since late July 2022. What’s even more remarkable is that this is the second consecutive weekly decline, effectively pushing down borrowing costs for home purchases from the staggering two-decade highs experienced just the previous month when 10-year Treasury note yields, the yardstick for U.S. home loan rates, had been relentlessly climbing.
Also Read: Housing Markets Dance with Rising Mortgage Rates: Risky Moves and Hope for Relief
The persistent upward trajectory in yields, which had been a months-long trend, witnessed a sudden and dramatic reversal last week. This unexpected turn of events was triggered by the U.S. Treasury’s announcement that forthcoming debt issuance would be somewhat less than previously anticipated. Simultaneously, the Federal Reserve opted to keep its key overnight policy rate unchanged for a second consecutive meeting.
Joel Kan, the MBA‘s vice president and deputy chief economist, provided valuable insight, noting that “Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC (Federal Open Market Committee) statement, and data indicating a slower job market.”
However, even with this remarkable drop in rates, it appears that prospective home-buyers are still somewhat reticent. While purchase applications did see a 3% increase compared to the previous week, they remain a substantial 20% below the levels seen at this time in the previous year. This hesitancy among potential buyers suggests that they are holding back, despite the alluring drop in rates. Furthermore, homeowners who secured mortgages at lower rates appear to be holding onto their properties, effectively contributing to the persistent constraints on inventory in the housing market.
Our Reader’s Queries
Why did mortgage rates just go down?
After the Fed’s December meeting, mortgage rates experienced a rapid decline, with 30-year mortgage rates dropping to around 6%, a level not seen since spring 2023. However, in the weeks that followed, rates have remained relatively steady.
Are mortgage rates expected to drop in 2024?
According to the Mortgage Bankers Association’s December Mortgage Finance Forecast, mortgage rates are expected to drop from 7% in Q1 of 2024 to 6.1% by Q4 of the same year. The association also predicts that rates will dip below the 6% mark in Q1 of 2025.
Will mortgage rates go down in 2023?
As per the Freddie Mac Primary Mortgage Market Survey®, mortgage rates witnessed a steady decline in November and December 2023, ultimately settling at 6.61% in the last week of the year.
Will we ever see 3 interest rates again?
It seems highly improbable that mortgage rates in the US will ever dip down to 3% again, at least not in the near future.