Mortgage rates took a downturn following the Federal Reserve increased its benchmark rate. On Thursday, the popular rate on 30-year fixed mortgages came down to 5.22% from 5.54% on Wednesday. The rate decreased even lower on Friday to 5.13%.
Earlier this week in the days leading up to the Fed meeting, the rates didn’t move much. But when the 30-year fixed reached 6%, it was breaking their latest high in mid-June. The decline on Thursday was followed by the Bureau of Economic Analysis’ gross domestic product report. According to it, for the second straight quarter, the U.S economy decreased. It is an extensively accepted signal of recession. As per the advance estimate, GDP decreased by 0.9% at an annualized pace for the period. A growth of 0.3% has come out after the economists polled by Dow Jones.
Following the news, investors hurried under the shade of the bond market, leading to the failed yields. Mortgage rates loosely follow the yield on the 10-year U.S Treasury bond. COO of Mortgage News Daily, Matthew Graham calls it an “exceptionally fast drop.” Even more interesting fact is that the mortgage rates have declined faster than U.S Treasury yields. Usually, it’s the opposite since investors rush to the most basic, risk free-bonds.
Graham also pointed out the big picture shifts in rates over the month has led to a point where investors usually give preference to holding mortgage debt with lower rates. Further the COO added that the mortgage investors are making efforts to move forward with the game. He said that they can lose money in case the loans refinance very rapidly. Now, the question arises if the market comes under a new range, and rates are likely to settle if they are now.
Graham issued a warning and said volatility will be still large even while going in the other direction if the rates are reversed. He further noted that mortgage rates can reach even low if inflation stays moderate and the economic data continues to be gloomy.
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Source: https://www.thecoinrepublic.com/2022/08/01/following-feds-recent-hike-and-negative-gdp-report-mortgage-rate-drops-significantly/