This past week, mortgage rates in the United States fell at their fastest pace in more than 10 years, mostly on economic uncertainty in the bond market at a time when home prices have soared to historic heights.
Specifically, the average interest rate on a 30-year fixed-rate mortgage fell for two weeks in a row. It is down to 5.3 percent from last week’s 5.7 percent, according to government-backed home loan agency, Freddie Mac. Furthermore, annual home price growth slowed down in May, at the biggest rate since the peak of the US subprime housing bubble, in 2006.
What’s more notable about the rate decline is that it somewhat reverses a rather steep and quicck rise in mortgage rates from this last year, which came after aggressive benchmark rate hikes from the Federal Reserve. In an attempt to combat global inflation issues, the Fed has been raising interest rates, which is why mortgage rates are nearly twice their 2.9 percent rate from a year ago.
Now, mortgage rates closely follow Treasury bond yield activity. Within the last month, 10-year Treasury note yield scraped upward to a pea of 3.5 percent; this is its highest level in more than a decade. Since that day in June, though, yield has fallen roughly 0.5 percentage points, to now trade below 3 percent.
On top of that, mortgage applications were also down 5.4 percent last week, from the previous week.
And, again, the housing issues is more complicated than just higher interest rates. Unfortunately this also a time when supply is tight: and when available inventory is low, prices go up. For example, the median US home price in May—of this year—jumped past $400,000 for the first time in history. This is nearly 15 percent from the same time last year, as documented by the National Association of Realtors.
Chief Economist at Freddie Mac Sam Khater comments, “While the [mortgage rate] drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination low housing affordability and an expected economic slowdown.”