The Federal Reserve is ready to cut interest rates starting in September.
But expectations that the Fed will act have already lowered mortgage rates, and borrowing costs could fall further before the central bank takes action.
The average interest rate on a 30-year fixed-rate mortgage is now at its lowest level since early February. Data from Freddie Mac last week shows rates fell to 6.73%, down from a peak above 7.2% earlier this year. Freddie Mac will release updated weekly data on Thursday.
And as stocks sold off and bonds continued to rise, these interest rates fell even further. According to data from Mortgage news dailyThe average interest rate fell earlier this week to 6.3%, the lowest level in more than a year.
As bonds rallied amid the stock market sell-off, the yield on the 10-year Treasury note fell to its all-time high. lowest level in more than a year on Monday, trading below 3.7% at session highs.
Douglas Duncan, chief economist at Fannie Mae, told Yahoo Finance in an interview that when “the 10-year-old [Treasury] If the mortgage interest rate falls, the mortgage interest rate usually also falls. Maybe not that far, maybe further sometimes. It depends on what else is happening in the market.”
Duncan explained that because bond traders have already priced in a rate cut, mortgage rates have also fallen.
‘One reason for the reset of the whole thing [mortgage] “The market expectation was that the Fed would cut rates,” Duncan added. “So that’s the best that can be contained until the Fed actually takes action. The market has incorporated that into its vision.”
Recent housing data points to affordability issues as rates have remained above 6% since the start of last year. Buyers still remain wary, applying for a mortgage to purchase a home rose by only 1% last week, despite this interest rate drop and a total of 11% lower than a year ago.
House prices reached 1 new high in June for the second month in a row, while the pace of existing home sales slowed, indicating that homeownership remains out of reach for many. And while prices have reached new highs, the pace of home price growth has slowed as inventories rise due to these affordability challenges.
Meanwhile, some homeowners are taking the opportunity to refinance existing loans now that interest rates have been lowered. Applications to refinance a home loan rose 16% last week. This is reported by the Mortgage Bankers Association.
And with market participants quickly raising expectations that the Fed will cut rates by half a percentage point in September after a disappointing jobs report raised fears of a recession, mortgage rates could soon fall even further.
“30-year mortgage rates may continue to decline before the Fed’s actual rate cuts are implemented because they are priced at 5- to 10-year bonds and not at the Fed Funds Rate,” said Jeff DerGurahian, Chief Investment Officer and chief economist of LoanDepot, told Yahoo Finance. .
“Any further decline, however, is likely to be limited until we gain more certainty about the timing and magnitude of any initial Fed move.”
Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.
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