Bets on a September Fed cut help reduce mortgage rates

Mortgage rates moved lower this week, and more drops could be in the offing, as the benchmark 10-year Treasury yield fell 31 basis points since the start of the month.

They are lower on a year-over-year basis, albeit not by a large amount.

The 30-year fixed rate loan averaged 6.89% on Thursday morning, down from 6.95% on July 3 and 6.96% for the same week in 2023, the Freddie Mac Primary Mortgage Market Survey reported.

Meanwhile, the 15-year FRM averaged 6.17%, down from last week's 6.25% and 6.30% one year ago.

Last week's PMMS was released a day early because of Independence Day.

"Following June's jobs report, which showed a cooling labor market, the 10-year Treasury yield decreased this week and mortgage rates followed suit," Sam Khater, Freddie Mac chief economist, said in a press release. "We're also seeing more inventory on the market, including a fair number of listings with price cuts, which is an encouraging sign for prospective buyers."

As of 11 a.m. Thursday morning, the 10-year Treasury was just under 4.18%, down from a July 1 high of 4.49%.

June's core Consumer Price Index, released earlier on Thursday, increased 0.1% from May. On an annual basis it was up 3.3%. These numbers exclude food and energy costs.

Shelter prices were up 0.2% from the prior month and 5.2% over June 2023.

"Given the recent data showing cooling inflation and slower job growth, we expect the 30-year fixed rate will decrease slowly to around 6.6% by the end of the year," Mortgage Bankers Association President and CEO Bob Broeksmit said in a Thursday morning comment on the group's Weekly Application Survey.

The market is now looking at a September short-term rate cut from the Fed, although it remains unlikely a July reduction is in the cards, experts on CNBC and Bloomberg said this morning. Previously observers anticipated a single rate cut likely in December.

While the Fed's actions do not directly affect mortgage rates, it does impact investors' actions on longer-term bonds such as the 10-year Treasury.

Lender Price product and pricing engine data posted on the National Mortgage News website put the 30-year fixed at 6.936% at 11 a.m. on Thursday. Midmorning on July 3, the 30-year FRM was at 7.023%.

Zillow's rate tracker was at 6.54%, down 18 basis points from last week's average of 6.72%.