US 30-year mortgage rate plunges by most in nearly 16 months – MBA
By Amina Niasse
November 8, 2023 – 2:31 PM UTC
The interest rate on the most common type of U.S. residential mortgage plummeted last week, marking the largest drop in nearly 16 months. This was fueled by a rally in the Treasury market, which caused benchmark yields to decrease and subsequently lowered home loan costs.
The Mortgage Bankers Association (MBA) reported that the average contract rate on a 30-year fixed-rate mortgage fell by a quarter percentage point to 7.61% in the week ending November 3. This is the lowest rate in about a month and the biggest weekly decline since late July 2022.
This second consecutive weekly decline has brought down borrowing costs for home purchases from the two-decade highs near 8% reached in October. These highs were a result of rising yields on the 10-year Treasury note, which serves as the benchmark for U.S. home loan rates.
However, last week saw a sharp reversal in yields after the U.S. Treasury announced that upcoming debt issuance would be lower than expected. Additionally, the Federal Reserve decided to keep its key overnight policy rate unchanged for a second consecutive meeting. These factors, along with data indicating a slower job market, contributed to the decrease in rates.
“Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC (Federal Open Market Committee) statement, and data indicating a slower job market,” said Joel Kan, the MBA’s vice president and deputy chief economist.
The MBA’s mortgage market composite index, which measures the volume of mortgage applications for both home purchases and refinancings of existing loans, rose 2.5% from the previous week to 165.9.
While purchase applications increased by 3% compared to the previous week, they are still 20% lower than the same time last year. This suggests that prospective buyers are still hesitant despite the decrease in rates. Sellers, on the other hand, are holding onto their homes due to the lower mortgage rates, resulting in limited inventory in the housing market.
Reporting By Dan Burns and Amina Niasse; Editing by Chizu Nomiyama and Andrea Ricci
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What were the primary factors that led to the recent drop in interest rates for U.S. residential mortgages?
The recent drop in interest rates for U.S. residential mortgages has sparked optimism in the housing market. Last week, the average contract rate on a 30-year fixed-rate mortgage dropped by a quarter percentage point to 7.61%, the lowest rate in about a month. This significant decline is the largest weekly drop since late July 2022.
The decrease in rates is primarily attributed to a rally in the Treasury market, which led to a decrease in benchmark yields and subsequently lowered home loan costs. This comes as a relief for potential homebuyers, as borrowing costs have been hovering near two-decade highs near 8% since October. These high rates were a result of rising yields on the 10-year Treasury note, which serves as the benchmark for U.S. home loan rates.
However, last week saw a sharp reversal in yields after the U.S. Treasury announced that upcoming debt issuance would be lower than expected. Additionally, the Federal Reserve decided to keep its key overnight policy rate unchanged for a second consecutive meeting. These factors, along with data indicating a slower job market, contributed to the decrease in rates.
Joel Kan, the Mortgage Bankers Association’s vice president and deputy chief economist, highlighted that last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Federal Reserve’s dovish tone in the November Federal Open Market Committee (FOMC) statement, and data indicating a slower job market.
While the decrease in rates has led to a 2.5% increase in the MBA’s mortgage market composite index, which measures the volume of mortgage applications for both home purchases and refinancings, there is still some hesitancy among prospective buyers. Purchase applications have increased by 3% compared to the previous week but are still 20% lower than the same time last year. This suggests that despite the decrease in rates, potential buyers are still cautious. On the other hand, sellers are holding onto their homes due to the lower mortgage rates, resulting in limited inventory in the housing market.
Overall, the recent drop in interest rates for U.S. residential mortgages has provided potential homebuyers with more affordable financing options. The decrease in rates is a result of various factors, including a rally in the Treasury market and the Federal Reserve’s decision to keep rates unchanged. However, despite the lower rates, prospective buyers remain hesitant, leading to limited inventory in the housing market. With the ongoing fluctuations in the economy and the uncertain future of interest rates, it will be interesting to see how the housing market evolves in the coming months.
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