Mortgage rates flat, but likely to fall as investors react to Fed move

Mortgage rates were unchanged from last week, according to Freddie Mac. But going forward, mortgage rates are likely to decline following investors' reaction to the Federal Open Market Committee's July 31 short-term rate cut announcement.

"The Federal Reserve's first cut to the federal funds rate in more than a decade came as no surprise to investors, but comments by Chairman Jerome Powell afterward caught enough of them off guard to send equity markets down, followed by bond yields — an indication that mortgage rates are due to slide as well," said Zillow economist Matthew Speakman when that company released its own rate tracker.

"Investors were expecting the chairman to suggest that this rate cut was the beginning of more to come, a move that would create increasingly accommodative conditions for businesses. Powell stopped short of that, however," Speakman continued. "Now, as expectations shift, both the Fed's and the market's respective attentions will turn to the slew of important economic data releases due in the coming days — particularly July's jobs report, which is due Friday."

The yield on the benchmark 10-year Treasury note fell initially in reaction to the Fed announcement, from 2.05% at 2:45 p.m. on July 31 to 2.01% at 4:40 p.m. before rebounding overnight. However, by 10:30 a.m. on Aug. 1, the yield tanked to 1.98%.

During this summer, mortgage rates had hovered around 3.8% after falling from near 5% between November and June.

"Mortgage rates have essentially stabilized over the last two months, which reflects the recovery and improvement in the economy from the malaise earlier in the year," Sam Khater, Freddie Mac's chief economist, said in a press release.

The 30-year fixed-rate mortgage averaged 3.75% for the week ending Aug 1, unchanged from last week. A year ago at this time, the 30-year fixed-rate mortgage averaged 4.6%.

The 15-year fixed-rate mortgage averaged 3.2%, up from last week when it averaged 3.18%. A year ago at this time, the 15-year fixed-rate mortgage averaged 4.08%.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.46% with an average 0.4 point, down from last week when it averaged 3.47%. A year ago at this time, the five-year adjustable-rate mortgage averaged 3.93%.

Freddie Mac has a bullish short-term outlook for housing.

"Going forward, the combination of low mortgage rates, tight labor market and high consumer confidence should set up the housing market for continued improvement in home sales heading into the late summer and early fall," Khater said.