Mortgage Rates Retreat from 23-Year Highs

Mortgage rates have taken a step back from their 23-year highs this week, providing some relief for prospective home buyers. The Federal Reserve, the U.S. Treasury, and the jobs report have played a role in this positive shift.

According to Freddie Mac, the closely monitored weekly measure of mortgage rates, the average 30-year fixed mortgage rate fell slightly to 7.76% from last week's multi-decade high of 7.79%. This marks the first decline in eight weeks, breaking a seven-week streak of increases.

Sam Khater, Chief Economist at Freddie Mac, acknowledged the temporary pause in the multi-week climb of the 30-year fixed-rate mortgage. However, he emphasized that the rate continues to hover just below 8%. Khater also pointed out that potential Federal Reserve rate hikes and global political uncertainty may impact the overall economic landscape, potentially stalling improvements in the housing market.

The decline in the Treasury yield benchmark for mortgage rates is believed to be a contributing factor to this relief. The 10-year Treasury yield, which often influences mortgage rates, has seen a three-day slump with Thursday morning's yield reaching its lowest point since October 13th, standing at 4.661% according to Dow Jones Market Data.

Although Freddie Mac's survey provides a smoothed average of mortgage rates on a weekly basis, daily movements can be much more significant. Mortgage News Daily's weekday survey of 30-year fixed mortgage rates reported an average rate of 7.51% on Thursday around noon. This reflects a second consecutive substantial decrease. Moreover, the rate has fallen nearly 0.40 percentage points since Tuesday and is comfortably below the 8% mark reached last month during a rally in Treasury yields.

Freddie Mac's Survey Indicates Possible Declines in Mortgage Rates

Freddie Mac conducts a weekly survey to track mortgage rate movements, which spans from Thursday morning to Wednesday night. It is noteworthy that any rate changes on Thursdays are included in the following week's average.

This week, there is a possibility of further declines in mortgage rates, as the 10-year Treasury yield decreased by 0.129 percentage point on Thursday morning. However, it is important to acknowledge the uncertainty surrounding this projection. Traditionally, mortgage rates tend to correlate with the Treasury yield, hence the decline following a lower-than-expected government jobs report, the Federal Reserve's decision to pause rate increases, and the Treasury's plan to hold fewer 10-year Treasury auctions.

Despite the Treasury's intention to reduce the number of auctions, there is expected to be a continued increase in longer-term debt issuance. Consequently, this will exert upward pressure on mortgage rates, according to Realtor.com's economic research analyst, Hannah Jones.

For prospective home buyers eagerly anticipating lower rates, the recent decline in mortgage rates brings some relief. However, it is important to note that mortgage rates are currently more than one percentage point higher than they were at the end of 2022. This increase in rates has resulted in an additional monthly cost of nearly $300 for purchasing a home worth $400,000.

If the lower Treasury yields from Tuesday's data persist, it is plausible that rates could remain lower. Nonetheless, historical data suggests that a significant decrease is required to bring rates back below 7%. In early August, when Freddie Mac's weekly average was last below 7%, the average 3 p.m. Treasury yield was slightly over 4%, as reported by Dow Jones Market Data. Therefore, in order for mortgage rates to fall below 7%, all else being equal, yields would need to be over half a percentage point lower than those observed on Thursday morning.