Housing MarketMortgageMortgage Rates

Mortgage rates drop again amid weaker inflation, slowing job growth

The 30-year fixed-rate mortgage declined to 6.27% as of April 12, marking its fifth consecutive weekly drop

Mortgage rates have declined over the last several weeks, and it’s helping to lure buyers back into what started out as a slow spring home buying season, Melissa Cohn, regional vice president of William Raveis Mortgage, said. And, the recent rate declines are sparking optimism among economists and loan officers. 

“On conventional loans, some rates have dropped by over half a percent or more. That is helping to bring people back into the market,” Cohn said in an interview with HousingWire.  “Would I say that business is robust? No, but they (buyers) say they want to buy, and now is the time to get into the market before rates come back down when there are even more buyers in the market.”

The 30-year fixed rate mortgage rate dropped to 6.27% this week, the fifth straight week of declines, according to Freddie Mac. Rates are down one basis point from last week but are up from an average of 5% this time last year.

At HousingWire’s Mortgage Rates Center, Optimal Blue’s 30-year fixed conforming mortgage rate was 6.33% as of April 12, up compared to 6.22% the previous Wednesday. The rate is calculated using actual locked rates with consumers across 42% of all mortgage transactions nationwide. 

Bond yields have also bounced back from last week’s lows, as recent data — including last Friday’s jobs report — signaled a moderating, but still relatively strong, job market. This suggests that the decline in job openings may not have heralded a broader weakening in the labor market, Danielle Hale, chief economist at Realtor.com, said.

The Consumer Price Index (CPI) rose by 5% in March on a yearly basis, down from 6% in February — marking the slowest pace of price increases since May 2021. That same month, the unemployment rate dropped to 3.5%, and U.S. employers added 236,000 jobs, landing below economists’ expectations of 239,000 job gains.

“These trends (inflation decelerating and mortgage rates declining), coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer,” Sam Khater, Freddie Mac’s chief economist, said.

Potential homebuyers also responded to lower rates last week, leading to an 8% jump in applications to buy a home. 

“The likelihood of even lower rates in the months ahead should lead to increased demand, despite recent signs of a slowing economy and tighter financial conditions,” Bob Broeksmit, MBA president and CEO, said.

All eyes on Fed’s next meeting 

Economists, including Hale, believe that if the current dip in mortgage rates can be sustained, it will keep buyers looking for homes — and potentially draw more homeowners into the market as sellers.

Mortgage rates tend to align with the 10-year U.S. Treasury yield, which didn’t move down significantly with the rate decline, even after the lower-than-expected inflation report. The 10-year yield traded at 3.41% on Wednesday compared to 3.43% on April 3. 

The labor market is getting softer, but is not broken yet, Logan Mohtashami, lead analyst at HousingWire, said. 

“However, once we break over 323,000 [jobless claims] on the 4-week moving average, the labor market is broken,” Mohtashami said. “The housing market needs bond yields to go down and the spreads between the 10-year yield and 30-year mortgage rate to get better to get more traction.”

The inflation data is still running at more than twice the target level, which highlights that the Federal Reserve still has more to do — and may need to lift short-term rates again at its early May meeting, Hale noted.

The central bank is likely to extend their run of interest rate hikes in May, despite Fed officials’ advisers warning of a mild recession later this year.

One more hike followed by a pause is a “reasonable starting place” for debate as officials approach their May meeting, John Williams, the New York Fed president and vice chair of the FOMC, said Tuesday. 

“Even if the Fed needs to raise short-term rates a bit higher, we are likely nearing the end of the tightening cycle. As long as the economy continues to see progress on inflation, that should help keep mortgage rates at the lower end of the 6 to 7% range that we’ve seen over the past few months,” Hale said.

There is still pent-up demand from buyers, and when people feel rates are truly coming down, they’ll start to step back into the market. They are slowly starting to do that, according to Cohn. 

“People are not jumping in and saying ‘I want to buy today.’ They’re saying ‘I’m ready to start looking again, let’s see what’s out there,’” Cohn said. 

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