By Jacob Passy
Mortgage rates slipped lower over the last week, a boon to those looking to buy a home or refinance.
The 30-year fixed-rate mortgage averaged 3.55% during the week ending Aug. 22, down five basis points from the previous week, Freddie Mac /zigman2/quotes/202741363/delayed FMCC 0.00% reported Thursday .
Rates for 30-year home loans have only increased eight times on a weekly basis so far this year — otherwise, they have dropped or remained even.
The 15-year fixed-rate mortgage dropped four basis points to an average of 3.03%, according to Freddie Mac. The 5/1 adjustable-rate mortgage averaged 3.32%, falling three basis point.
Mortgage rates track the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% . Last week, the yields of the 10-year note and the 2-year Treasury note /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00% inverted for the first time in over a decade, meaning the shorter-term note’s yield was higher. Yield curve inversions have historically signalled that the U.S. economy could face a recession.
Looking ahead, it’s unclear whether mortgage rates will fall again or increase. Federal Reserve officials appear to view the rate cut last month as a “recalibration” and not necessarily as the first of multiple cuts, according to the minutes of their most recent meeting released Wednesday .
When the Federal Reserve cuts rates, that directly affects short-term interest rates rather than long-term rates like those for the 30-year mortgage. Nevertheless, the mortgage market tends to bake in expectations of future Fed moves into the rates offered, which explains why mortgage rates were falling well before the Fed took action.
The decline in mortgage rates this year has sparked the largest refinance boom in three years.
The most recent existing-home sales data released Wednesday indicated that falling rates in July did prompt an uptick in home-buying activity, particularly in the West. Lower rates have also sparked the biggest refinance boom in years.
“The benefit of lower mortgage rates is not only shoring up home sales, but also providing support to homeowner balance sheets via higher monthly cash flow and steadily rising home equity,” Freddie Mac said in the report Thursday.
But the same headwinds that have kept many people from buying homes remain. There are very few properties for sale, and home prices are increasing as a result. That’s made it much more expensive to buy a home, and low mortgage rates only marginally offset the affordability constraints.
With the economy potentially heading toward a recession, mortgage rates could come down even lower in the weeks and months ahead. But a weaker economy could wreak havoc on consumers’ confidence — which would it even less likely that people would be inclined to buy a home.