Mortgage rates fall amid market uncertainty

Mortgage rates fell over the past week, as the industry attempts to decipher what current market volatility could spell for the road ahead.

The 30-year fixed-rate mortgage average dropped 5 basis points to 5.25% from 5.3% one week earlier for the seven-day period ending May 19, according to Freddie Mac’s Primary Mortgage Market Survey. The current 30-year average is 125 basis points above its level of one year ago, when it came in at 3%.  

Rates fell despite numbers that would normally lead them upward.

“Price data released last week showed persistent inflation in many areas of the economy, but interest rates did not move higher on this news as the Federal Reserve affirmed market expectations for 50-basis-point rate hikes at the next two meetings of the Federal Open Market Committee,” said Paul Thomas, vice president of capital markets at Zillow, in a research blog post.

Investors are reacting cautiously to recent developments, Thomas noted, as they gauge the potential for a recession or continued slowdowns based on the anticipated Fed rate hikes. Treasury yields —  to which mortgage rates are tied  —  came in lower during the week, but have swung wildly throughout the year so far.

The economic environment is leaving a big question mark hanging over the mortgage and home construction industries.

“Economic uncertainty is causing mortgage rate volatility,” said Sam Khater, Freddie Mac’s chief economist, in a press release. “As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years,” he added.

In the past week alone, reports showed continued slowdowns in new-home construction and sales of previously-owned units, while leading industry researchers have reduced their originations forecasts for the year.

But retail sales numbers, also from earlier this week, provided a clue to what may lie ahead, at least over the next seven days, Thomas said. The data showed signs of continued momentum in consumer spending despite ongoing inflation.

“This reading may put upward pressure on rates in the coming week, showing a resilient level of consumer demand that may keep the economy growing even with higher interest rates,” he noted.

The 15-year fixed-rate average also dropped by 5 basis points over the past week, according to Freddie Mac, declining to 4.43% from 4.48%. In the same time frame a year ago, the 15-year average stood at 2.29%.

The 5-year Treasury-indexed hybrid adjustable rate, however, increased, rising above the 4% mark. The 5-year ARM came in at 4.08%, up 10 basis points from 3.98% a week earlier. In the same seven-day period of 2021, the average came in at 2.59%.