Investors turned their attention to the bond market Monday morning, prompted by a significant stock market sell-off. This shift in focus resulted in a decrease in bond yields, which subsequently led to a drop in mortgage rates. According to Mortgage News Daily, the average rate for a 30-year fixed mortgage fell to 5.99%, matching its lowest level since 2022. In contrast, rates were significantly higher at this time last year, sitting at 6.89%.
This decrease in yields can be attributed to several factors, including renewed uncertainty surrounding tariffs, signs of cooling inflation, and economic indicators pointing towards weakness as evidenced by a lackluster gross domestic product report released the previous Friday. While mortgage rates had briefly dipped into the 5% range for a few hours in January, they rebounded that same day. Experts suggest that the current scenario may offer more stability. Matthew Graham, chief operating officer at Mortgage News Daily, remarked, “This visit to the high 5’s looks more sustainable on paper.” He added that as long as the broader bond market remains stable, mortgage rates are likely to hold steady at these levels. Should the bond market improve further, particularly with 10-year yields dropping below 4.0%, incremental gains in mortgage rates could be anticipated.
The decline in rates could stimulate a surge in refinancing activity, which has already seen a significant uptick in recent weeks. The Mortgage Bankers Association reported that applications to refinance home loans are approximately 130% higher than they were a year ago.
As the spring housing market approaches, these lower rates present an encouraging outlook for potential homebuyers. Individuals entering the market now will find that their purchasing power has improved compared to last spring. For example, a buyer putting 20% down on a median-priced home—currently about $400,000 according to the National Association of Realtors—would have a monthly payment of $1,916 for principal and interest. This is a notable decrease from the $2,105 payment seen a year prior, translating to a savings of $189 each month.
Although the difference in monthly payment may appear modest, it opens up opportunities for more borrowers to qualify for loans at today’s lower rates. Lawrence Yun, chief economist for the Realtors, highlighted in his January pending home sales report that with mortgage rates nearing 6%, an additional 5.5 million households that were unable to qualify for a mortgage a year ago may now do so. He caveated that most newly qualifying households do not act immediately. Nevertheless, based on previous trends, it is predicted that about 10% of these households could enter the market, potentially adding roughly 550,000 new homebuyers this year compared to last year.
However, applications for mortgages to purchase homes have not seen a significant response to the current lower rates, indicating that as of mid-February, they were only 8% higher on a year-over-year basis. The evolving dynamics of the mortgage market continue to attract attention as more potential buyers consider their options amid changing economic conditions.
