A sign is placed in front of a house for sale on July 14, 2022 in San Francisco, California. The number of homes for sale in the US rose 2 percent in June for the first time since 2019.
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Just one day after the Federal Reserve raised its benchmark rate, mortgage rates took a sharp turn lower.
The average rate on the popular 30-year fixed mortgage fell to 5.22% on Thursday from 5.54% on Wednesday, when the Fed announced its latest rate hike, according to Daily Mortgage News.
Rates hadn’t moved much in the days leading up to the Fed meeting earlier this week, but had been slowly coming off their most recent high in mid-June, when the 30-year fixed rate briefly crossed 6%. .
Thursday’s drop also came on the heels of the Bureau of Economic Analysis’ gross domestic product report, which showed the US economy contracted for the second straight quarter. That is a widely accepted sign of a recession. GDP fell 0.9% at an annualized rate for the period, according to advance estimate. Economists surveyed by Dow Jones had expected growth of 0.3%.
After the news, investors rushed to the relative safety of the bond market, sending yields plunging. Mortgage rates loosely track the yield on the 10-year US Treasury bond.
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“This is an exceptionally fast drop!” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “Perhaps even more interesting (and unusual) is the fact that mortgage rates have fallen faster than US Treasury yields. Usually it’s the other way around, with investors flocking to higher bonds first.” basic and without risk”.
Graham said the general change in rates over the past month has created a situation where investors prefer to hold mortgage debt at lower rates.
“In a way, mortgage investors are trying to get ahead of the game. If they have higher-rate mortgages, they will lose money if those loans are refinanced too quickly,” he added.
The question now is whether the market is in a new range and rates will settle where they are now.
“If rates change course, the volatility could be just as great in the other direction,” Graham warned. He also noted that mortgage rates could fall further if economic data continues to be gloomy and inflation moderates.
The lower rates already seem to have a slight impact on potential homebuyers. real estate brokerage red fin just reported seeing a slight increase in home searches and tours in the past month as rates dipped from their recent highs.
“The housing market appears to be settling into equilibrium now that demand has leveled off,” Redfin chief economist Daryl Fairweather said in a statement. “We may still be in for a few surprises when it comes to inflation and Fed rate hikes, but for now an easing in mortgage rates has provided some relief to buyers who were reeling from rate hikes. of last month”.
The increased interest from buyers, however, has not translated into new contracts or sales. The supply of homes for sale is slowly increasing, and there are reports of more sellers lowering their asking prices.
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