In a significant development, the interest rate on the most prevalent type of residential mortgage in the United States experienced its most substantial drop in nearly 16 months. This dramatic shift was primarily attributed to a rally in the Treasury market, resulting in a decrease in the benchmark yields that play a pivotal role in determining home loan costs.
The Mortgage Bankers Association (MBA), in its report released on Wednesday, revealed that the average contract rate for a 30-year fixed-rate mortgage recorded a remarkable quarter-point decline in the week ending on November 3, plummeting to 7.61%. This marked the lowest rate in approximately a month and represented the most substantial weekly drop since late July 2022.
This latest decrease in mortgage rates follows a trend of declining home-purchasing borrowing costs, which had surged to two-decade highs of nearly 8% in October. The surge had been closely linked to the increasing yields on the 10-year Treasury note, which serves as the benchmark for U.S. home loan rates.
However, this months-long upward trajectory in yields witnessed a sharp reversal last week. This turnaround came after the U.S. Treasury announced that its upcoming debt issuance would be somewhat lower than previously anticipated. Additionally, the Federal Reserve chose to maintain its key overnight policy rate for the second consecutive meeting.
Joel Kan, the MBA’s Vice President and Deputy Chief Economist, attributed the decline in rates to several factors. These included the U.S. Treasury’s issuance update, a dovish tone in the November Federal Open Market Committee (FOMC) statement by the Federal Reserve, and data indicating a slower job market.
Despite the decline in rates, the MBA’s mortgage market composite index, which measures the volume of mortgage applications for both home purchases and refinancing of existing loans, increased by 2.5% compared to the previous week, reaching a value of 165.9.
While purchase applications saw a 3% increase for the week, they remained 20% lower compared to the same period the previous year. This indicates that potential homebuyers are still hesitant to enter the market, even with the reduced rates. Sellers, who have secured mortgages at lower rates, are choosing to retain their properties, thereby contributing to the ongoing limitation in housing inventory.
