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Falling Treasury Yields Likely to Lower Mortgage Rates


The recent decline in the yield on the 10-year Treasury is expected to have a positive impact on mortgage rates. This news is welcomed by both home buyers and investors in the housing market.

The 10-year Treasury yield, which is closely associated with changes in mortgage rates, has been decreasing since Friday morning. This drop comes after the release of October’s Labor Department jobs data, which showed a cooler-than-expected performance. According to Dow Jones Market Data, the yield currently stands at 4.510%, the lowest since September 22. If it settles at 4.516% or lower, it will mark the largest weekly decline since March 2020.

This development is particularly good news for home buyers who have been burdened by rising mortgage rates throughout late summer and early fall. It also indicates that the upward trajectory towards mortgage rates reaching 8% or higher has been put on hold.

Freddie Mac’s weekly measure, which has been climbing for seven consecutive weeks, experienced a slight decrease this week from its peak at a 23-year high. Meanwhile, Mortgage News Daily’s measure of the 30-year fixed rate reached as high as 8.03% in October.

While Freddie Mac’s survey recorded a modest 0.03 percentage point decline on Thursday, it is worth noting that mortgage rates are likely to be falling more than what appears in weekly data. This is because Freddie Mac’s data collection ends on Wednesday night, meaning that the descent in Treasury yields on Thursday and Friday are not factored into their data.

Based on Mortgage News Daily’s survey, Thursday’s 30-year fixed rate was reported at 7.51%, showing a significant decrease of 0.41 percentage point from Monday’s rate. With Friday’s drop in the 10-year Treasury yield, it suggests that mortgage rates will be even lower today.

However, despite the lower rates, buyers may not be motivated to enter the market just yet. If the recent decline in Treasury yields persists, experts predict that Freddie Mac’s rate next week could decrease by a quarter of a percentage point or potentially more, settling around 7.5%. Keith Gumbinger, the Vice President of mortgage website, shares this outlook.

The Potential Drop in Mortgage Rates Offers Optimism for Home Buyers

The recent decline in mortgage rates could provide some relief for home buyers, potentially saving them around $60 per month on a $400,000 home. Although this may not significantly impact buyers’ financial capability or willingness, it does offer a glimmer of hope. Experts suggest that this drop in rates indicates that they have stopped rising and may even decrease further if inflation stabilizes and the Federal Reserve remains cautious.

Investors in home builders are another group benefiting from the decline in mortgage rates. Exchange-traded funds like the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB) have seen positive growth, with increases of 3.2% and 3.9%, respectively.

While higher rates have affected the market for existing homes, new home sales have stayed strong. Builder stocks continue to be influenced by the 10-year Treasury yield, as companies offer incentives to keep sales going when rates rise.

Prominent industry forecasters, including the Mortgage Bankers Association, National Association of Realtors, and Fannie Mae, anticipate that mortgage rates will peak in the fourth quarter and decrease in 2024. The Mortgage Bankers Association projects an average rate of 7.2% by the end of 2023, followed by a decline to an average of 6.1% by the end of 2024.

Lawrence Yun, chief economist for the National Association of Realtors, suggests that if the gap between Treasury and mortgage rates were to return to historical norms, mortgage rates would range from 6.2% to 6.7% currently. This wider gap has been unusual throughout this year.

In conclusion, the potential drop in mortgage rates brings some much-needed optimism for home buyers and investors alike. It is predicted to attract more buyers and sellers to the market, creating new opportunities in the real estate industry.

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