Homebuyers across the U.S. are taking a collective sigh of relief: National mortgage rates have decreased for the third straight week, according to Freddie Mac.
The average 30-year fixed mortgage rate has dropped by seven basis points this week to 6.23%. The 15-year fixed rate is also down seven basis points, sitting at 5.58%.
In my years of reporting on mortgages and interest rates, I’ve seen that the public’s expectations about economic or political moves often impact rates more than an event itself.
For example, if investors anticipate that the Federal Reserve will cut the federal funds rate at its next meeting, mortgage rates typically inch down in the weeks leading up to the meeting. Home loan rates rarely fall significantly after the Fed actually decreases its rate at a meeting.
Similarly, the U.S. is still at war with Iran, and this was a major factor in driving up mortgage rates in March and early April. However, the U.S. has declared a ceasefire, and there are signals that the war could end. This gives investors hope, and their positive outlook helps mortgage rates go down.
This perception of the conflict in the Middle East isn’t the only reason rates are inching down, though. I talked with a couple of experts in the mortgage space for their perspectives.
Why are mortgage rates decreasing?
“The third consecutive weekly decline in mortgage rates is being driven by a few key factors working together,” Matt Vernon, head of consumer lending at Bank of America, told TheStreet. “Treasury yields have softened, and since mortgage rates track the 10-year Treasury more closely than the federal funds rate, that’s had a direct effect.”
Vernon noted that data about softer spending and a moderating labor market have signaled that the economy is cooling. And when the economy struggles, mortgage rates tend to decrease.
Related: Experts send strong message about decreasing mortgage rates
“Progress on inflation has also helped ease some of the upward pressure we saw earlier this year,” he said.
When we look at these four factors — investor perception about the Iran war, softer 10-year Treasury yields, a cooling economy, and improving inflation — it makes sense that mortgage rates are steadily inching down.
Will mortgage rates continue to drop?
You know those four factors I just listed? Whether or not mortgage rates keep falling depends on what happens with each of those issues.
“If oil-related inflation pressure stays temporary and labor market data continues to soften, the odds of a Fed cut keep moving higher, which could create a more constructive setup for housing,” Jeff DerGurahian, chief investment officer and head economist at loanDepot, told TheStreet.
More on mortgage rates and the housing market:
- Zillow predicts home values, housing market change
- Dave Ramsey sends strong message on housing market
- Fannie Mae predicts shift in mortgage rates, home prices
Vernon and DerGurahian agree that if mortgage rates do continue to fall, the decrease will be gradual. Americans shouldn’t expect loan rates to plummet during this home-buying season, and maybe not even by the end of the year.
All of this uncertainty is a reminder that homebuyers shouldn’t try to time the real estate market, especially based on what mortgage rates are doing.
“What I’d tell buyers and homeowners is this: rather than trying to time the market, focus on what works for your financial situation today,” Vernon said. “If rates do drop further, refinancing is always an option down the road. Waiting for the ‘perfect’ rate can sometimes delay your plans without guaranteeing a meaningful financial advantage.”
Experts advice on locking in a lower mortgage rate
Mortgage rates may be ticking down, but they’re still well above 6%, according to Freddie Mac data. Thankfully, there are several ways for borrowers to lower their mortgage rate or other home-buying costs on their own, without waiting for external factors to push rates down.
- Look into discount points or a rate buydown. A discount point permanently lowers your mortgage rate. A rate buydown is temporary, usually lowering your rate for the first one to three years of your loan term. If you decide to take advantage of either tool, you’ll pay an extra fee at closing.
- Ask for seller concessions when negotiating your offer. “With inventory improving and homes staying on the market longer in some areas, buyers may have more leverage to negotiate concessions that can offset closing costs or fund a buydown,” Vernon said.
- Apply for preapproval with several lenders. A study by Freddie Mac revealed that getting rate quotes from two mortgage lenders could have saved borrowers up to $600 per year, and four or more quotes could have saved them more than $1,200.
- Shop for a lender with a down payment assistance program. For example, Bank of America’s Down Payment Grant offers up to 3% of the home purchase price or $10,000 (whichever is less), and you don’t have to repay the funds. The U.S. Bank American Dream Mortgage provides up to $10,000 for a down payment if you contribute at least $1,000.
Related: Redfin reveals shift in home prices, housing market
