A sign is posted outside a home for sale on July 14, 2022 in San Francisco, California. The number of homes sold in the US rose 2 percent in June for the first time since 2019.
Justin Sullivan | Getty Images
Just one day after the Federal Reserve raised interest rates, mortgage rates fell sharply.
The average interest rate on a popular 30-year fixed mortgage fell to 5.22% on Thursday, from 5.54% on Wednesday, when the Fed announced its last rate hike. Mortgage News Daily.
Rates were largely unchanged in the days leading up to the Fed’s meeting earlier this week, but they were slowly reaching their highest in mid-June, when they briefly passed the 30-year steady of 6%.
Thursday’s drop also came after a gross domestic product report from the Bureau of Economic Analysis showed the U.S. economy contracted in the second quarter. This is a widely accepted bearish signal. According to the report, GDP decreased by 0.9% at an annual rate for this period pre-assessment. Economists polled by the Dow Jones had expected a 0.3% rise.
After the news, investors slammed the relative safety of the bond market, sending yields down. Mortgage rates track the yield on the 10-year US Treasury bond.
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“That’s a pretty fast drop!” wrote Matthew Graham, CEO of Mortgage News Daily. “Perhaps more interesting (and unusual) is that mortgage rates are falling faster than U.S. Treasury yields. This is the opposite of what usually happens when investors flock to the simplest, risk-free bonds.”
Graham said the big picture shift in rates over the past month has created a situation where investors prefer to hold mortgage debt at lower rates.
“In a way, mortgage investors are trying to get ahead of the game. If they have mortgages with higher interest rates, they’re going to lose money if those loans are refinanced too quickly,” he said.
The question now is whether the market is in a new range and rates will settle where they are now.
“If rates reverse course, volatility could be as great as going the other way,” Graham warned. He also noted that if economic data continues to be lackluster and inflation moderate, mortgage rates could fall further.
Already low prices are having little effect on potential home buyers. real estate brokerage redfin reported only seeing a slight increase in searches and home tours in the last month as prices bottomed out.
“The housing market is now balancing as demand levels off,” said Daryl Fairweather, chief economist at Redfin. “We may still be in for some surprises when it comes to inflation and the Fed’s rate hikes, but for now, the easing in mortgage rates has brought some relief to buyers who were hurt by last month’s rate hike.”
However, the increase in buyer interest has not translated into new contracts or sales. The supply of homes for sale is slowly increasing and there are reports of more sellers lowering their asking prices.
