Mortgage rates fell this past week, as the 10-year Treasury sank in anticipation of a future short-term rate cut being telegraphed following
Most observers are now anticipating a reduction in the Fed Funds Rate at the September FOMC meeting; but in the days prior to this week's session, some were calling on the Fed to act now.
The 30-year fixed rate mortgage declined 5 basis points
The 15-year FRM had a larger drop versus the comparative periods, to 5.99% from last week when it averaged 6.07% and a year ago when it was 6.25%.
"Mortgage rates declined to their lowest level since early February," said Sam Khater, Freddie Mac's chief economist, in a press release. "Expectations of a Fed rate cut coupled with signs of cooling inflation bode well for the market, but apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind."
Meanwhile, on Thursday morning, for the first time since the start of February, the 10-year yield sank under 4%, at 3.99% at noon. A week ago, it closed at 4.26%.
Lender Price product and pricing engine data
The 30-year FRM as measured on Zillow's rate tracker as of 11:30 a.m. on Aug 1, was at 6.21%, down 7 basis points on the day and 25 basis points from last week's average rate of 6.46%.
"The Fed chair acknowledged that monetary policy is now in restrictive territory," Zillow Home Loans Senior Economist Orphe Divounguy, said in a Wednesday commentary about mortgage rate movements. "However, acting too soon to move policy to a less restrictive stance could undo progress on the inflation front."
The potential for a Fed rate cut has already created a rally in the mortgage market, said Kevin Ryan, chief financial officer at Better.com.
"For the first time in over four years, the bias for mortgage rates is downward, which could bring some marginal activity into the market," Ryan said in a statement. "Although affordability challenges will remain, the trend towards lower rates is a positive development for potential homebuyers."
The futures market indicates traders are pricing in three 25 basis point rate cuts before the end of the year, starting in September, Divounguy noted.
Strong economic growth could keep the 10-year yield elevated. "However, more stable inflation and more sustainable economic growth could also help lower the spread between the 10-year Treasury yield and the 30-year fixed rate mortgage," Divounguy said. "This week's release of the July employment situation will likely cause investors to reassess their forecasts, meaning more rate volatility ahead."
Mortgage application numbers have
"Many borrowers may be hoping and waiting for mortgage rates to decline even further, which is what we expect to happen once the Federal Reserve begins to cut short-term rates as early as this fall," he continued.
Mike Fratantoni, the MBA's chief economist, noted that while the FOMC's most recent vote was unanimous, increasingly many Federal Reserve officials are asking to begin cutting rates.
"We are
If that rate cut does take place, it may not be enough to ensure smooth sailing for the industry.
"Even with a September rate cut possible, mortgage companies will continue to face meaningful earnings headwinds for the foreseeable future," Eric Orenstein, senior director at Fitch Ratings, said in a statement issued after the FOMC meeting. "With most outstanding mortgages still carrying rates below 5% and record home prices driving down affordability, it may be a long road back to higher origination volumes."
Some mortgage rate relief for consumers might be on the way because of this Fed "adjustment in monetary policy," said Steve Wyett, chief investment strategist at BOK Financial, in a commentary.
"Still, underlying demand remains at levels that likely will prevent significant price decline or a material improvement in affordability," Wyett continued. "The fact is: despite the recent increase in new homes for sale, we remain in a supply constrained housing environment."
