Rosalind Evans
The average mortgage rate has hit its lowest point in over a year, thanks to a weaker-than-expected employment report. The popular 30-year fixed mortgage rate dropped by 22 basis points to 6.4% on Friday, the lowest since April 2023, while the 15-year fixed rate fell to 5.89%, its lowest since early May 2023.
Employment Report Triggers Rate Drop
The significant drop in mortgage rates was triggered by a weaker-than-expected monthly employment report, which caused bond yields to fall rapidly. Mortgage rates generally follow the yield on the 10-year U.S. Treasury. Matthew Graham, chief operating officer at Mortgage News Daily, stated, “Between [Federal Reserve Chair Jerome] Powell’s equivocal openness to ‘multiple cuts’ in 2024 on Wednesday and this morning’s sharply weaker jobs report, the more aggressive rate cut narrative is quickly coming into focus.”
Potential for More Rate Cuts
Graham emphasized that two inflation reports and another employment report are still due before the Fed’s September meeting. He noted, “If they don’t offer strong counterpoints to recent data, the rate cut cycle has not only begun but will likely involve a certain sense of urgency.”
Impact on Home Buyers
The impact on home buyers is significant. The 30-year fixed rate started the week at 6.81% and dropped dramatically within five days. The recent high of 7.52% in late April contributed to falling home sales as buyers struggled with high interest rates, high home prices, and a lack of supply. While supply has improved, prices remain overheated. In April, a buyer looking to purchase a $400,000 home with a 20% down payment and a 30-year fixed mortgage faced a monthly fee of about $2,240. Today, that payment would be around $2,000, making homes more affordable and qualifying more buyers for loans.
Boost in Mortgage Applications
According to the Mortgage Bankers Association, mortgage applications to purchase a home have been about 15% lower than last year’s. However, the recent drop in rates is expected to boost demand. In a news release, Mike Fratantoni, chief economist for the Mortgage Bankers Association, mentioned, “The market is moving ahead of the Fed, bringing down longer-term rates, including those for mortgages, which should lead to both more home purchases and a pickup in refinance activity.”
The recent plunge in mortgage rates offers a glimmer of hope for home buyers facing affordability challenges. As the market anticipates further rate cuts, this trend may stimulate home purchases and refinancing activities, providing a much-needed boost to the housing market.
