Mortgage Rates Have Dropped ‘Dramatically’ Since Start of the Year

Mortgage rates edged lower to kick off the start of the spring homebuying season this week. Borrowing costs are now lower than what they were a year ago.

Mortgage rates have dipped quite dramatically since the start of the year and house prices continue to moderate, which should help on the home buyer affordability front,” says Sam Khater, Freddie Mac’s chief economist. The combination of improving affordability and more inventory than the last few spring selling seasons should lead to improved home sales demand.

Freddie Mac reports the following national averages with mortgage rates for the week ending March 21

30-year fixed-rate mortgages: averaged 4.28 percent, with an average 0.4 point, falling from last week’s 4.31 percent average. Last year at this time, 30-year rates averaged 4.45 percent.

15-year fixed-rate mortgages: averaged 3.71 percent, with an average 0.4 point, dropping from last week’s 3.76 percent average. A year ago, 15-year rates averaged 3.91 percent.

5-year hybrid adjustable-rate mortgages: averaged 3.84 percent, with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 3.68 percent

The Federal Reserve announced Wednesday after its March meeting that it will leave its short-term interest rates unchanged and also signaled that it likely will not raise rates for the remainder of the year. This marks a sudden change to what had been five consecutive quarters of rate increases. Not only that, the Fed also did not rule out the possibility of a future rate cut.

The Fed’s key benchmark rate is now in the range of 2.25 to 2.5 percent. The Fed’s rate is not directly tied to mortgage rates but often influences them. Many Fed officials at Wednesday’s meeting hinted that a single rate increase is likely for 2020 and not likely in 2021.

The economy “is in a good place,” but Fed Chairman Jerome H. Powell acknowledged that it is slowing compared to a year ago and will likely continue to slow into 2020. Powell, however, showed little concern about inflation.

Yields on the 10-year Treasury note, which often are more closely tied to long-term fixed mortgage rates, dropped significantly following the Fed’s statement. The yield on the 10-year Treasury dropped to 2.52 percent—the lowest level since January 2018.

Also at Wednesday’s meeting, the Fed announced it would likely reduce the monthly holdings of U.S. Treasury bonds from up to $30 billion to $15 billion beginning in May which could ultimately have an impact on mortgage rates.

The bigger news from this meeting was the clear signal that the Fed will stop allowing their balance sheet to shrink, and will begin to slow it to grow again starting this fall. Fed officials have noted that they would like to return the balance sheet to primarily Treasury assets, meaning that MBS will continue to roll off, with the proceeds being invested in Treasury securities … The Fed also noted the potential to sell ‘residual holdings’ of MBS at some point, but that they would give plenty of notice before doing so. Over time, these changes could put some upward pressure on mortgage-Treasury spreads—and ultimately—mortgage rates.”

Contact Cristina Alexander for an Investment property analysis and consultation.
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