Mortgage rates unlikely to fall in near-term, Freddie says

Mortgage rates were little changed this week, even though the benchmark 10-year Treasury rose to its highest level since November, according to Freddie Mac.

It is unlikely that a large drop in rates is on the horizon, the government-sponsored enterprise continued.

"Since the start of 2024, the 30-year fixed-rate mortgage has not reached 7% but has not dropped below 6.6% either," Sam Khater, chief economist at Freddie Mac, said in a press release. "While incoming economic signals indicate lower rates of inflation, we do not expect rates will decrease meaningfully in the near-term."

The average for the 30-year fixed rate mortgage on April 4 was 6.82%, up 3 basis points from the prior week, the Freddie Mac Primary Mortgage Market Survey found. At this time last year, the 30-year loan averaged 6.28%.

The 15-year FRM actually fell 5 basis points to 6.06% from 6.11% the prior week, but was up from 5.64% one year ago.

However, the 10-year Treasury yield topped out at 4.43% on April 3, compared with 4.20% at its March 27 close. It closed on April 3 at 4.36% and by 11:30 a.m. eastern time the next morning was down to 4.34%.

Zillow's rate tracker was more reflective of the movements in the 10-year, up 22 basis points as of late morning Thursday at 6.66% from an average of 6.44% the prior week.

"If the Fed leaves the short-end higher for longer, we think there could be more limited downside in floating-rate preferred [stock] because the coupon should remain in the double digits in most cases, versus if the Fed cuts rates, we think the likelihood is for mortgage-backed securities spreads to tighten, which could help support fundamental value across the capital structure," Eric Hagen, an analyst at BTIG, commented in his April 2 Mortgage Finance Roundup report.

MBS spreads are another consideration for lenders in pricing mortgage loans.

"We still think banks like JPMorgan [Chase] can undercut the independent mortgage banks on price, although we're not looking for depositories to show quarter-to-quarter production numbers which are as strong as the most scaled non-bank correspondent lenders like Pennymac," Hagen said.

Bond traders were bearish this week, selling off Treasurys as data about manufacturing and jobs showed the U.S. economy remained strong, a Bloomberg report noted. When demand for Treasurys declines, prices will also drop and the yields rise.

More jobs data that could impact Treasury yields and thus mortgage rates will be available on Friday when the monthly Bureau of Labor Statistics report is released.