- The average rate on a 30-year mortgage just saw its biggest weekly drop in more than 40 years.
- Better-than-expected inflation news drove the drop, which offers real savings for homebuyers.
- More good news on mortgage rates and inflation will be needed to end the housing market woes.
Buyers, rejoice. The average 30-year mortgage rate just saw its biggest weekly drop in more than 40 years, according to Freddie Mac.
The average rate on a 30-year fixed-rate loan fell to 6.61% for the week ended Thursday, from 7.08% the previous week. This is encouraging news for buyers who have been hit by high inflation and mortgage rates that have more than doubled over the past year.
Sharp rate increases over the summer and fall, the result of the Federal Reserve’s inflation-fighting efforts, added hundreds of dollars to the typical monthly mortgage payment. Many buyers have retirement as a result, plunging home sales and prompting homebuilders to withdraw on their production plans.
Mortgage rates in the top six might not have seemed like cause for celebration a year ago, when the average 30-year mortgage rate hovered around 3%. And homebuyers still face stubbornly high home prices and an uncertain future as recession fears persist.
But lower rates could have real impacts for buyers looking to stretch their money further in today’s market.
“The historic decline in mortgage rates is a tick in the ‘good news’ box for the housing market, as lower rates offer an immediate gain for the portfolios of potential buyers,” said Taylor Marr, deputy chief economist of Redfin, in a press release.
“Until we see more consistent evidence over time of slowing inflation and a larger and more steady decline in mortgage rates, we expect the impact to be muted. Pending sales and new listings may stop falling, but they shouldn’t see a major boost until there is more certainty that the Fed’s efforts to rein in inflation are working. “
A inflation report better than expected last week led to the biggest drop in mortgage rates on record, according to Redfin. The drop brings the typical monthly mortgage payment nationwide to $2,430 from $2,542 the previous week, the brokerage said.
In other words, a typical homebuyer would save about $100 per month by setting a rate today versus a week ago.
Mortgage rates haven’t fallen this much in a week since 1981, when the average rate fell 0.49 percentage points.
A key metric to watch closely is the difference between the yield on a 10-year Treasury note – a common benchmark in debt markets – and the rate on a 30-year mortgage. Today, the 30-year mortgage rate of 6.61% is about 2.78 percentage points higher than the 10-year Treasury yield, well above the long-term average of 1.75 percentage points. percentage. This suggests that lenders have some leeway to lower their mortgage rates while earning acceptable returns.
In August, when 30-year rates hovered around 5.5%, Bank of America experts said they expected the 10-year Treasury yield to end the year at around 2.75%. If interest rate volatility declines, mortgage rates could also continue to decline, narrowing the spread to the 10-year Treasury yield. If that spread returns to the historical average, that would put the 30-year mortgage rate at around 4.5%.