(Reuters) – A significant drop in the interest rate for the most prevalent type of U.S. residential mortgage occurred last week, marking the most substantial decline in nearly 16 months. This reduction was driven by a rally in the Treasury market, which caused a decrease in the benchmark yields used to determine home loan costs.
The Mortgage Bankers Association (MBA) reported on Wednesday that the average contract rate for a 30-year fixed-rate mortgage fell by a quarter percentage point to 7.61% during the week ending November 3, reaching its lowest level in approximately a month. This marked the most substantial weekly decrease since late July 2022.
This consecutive weekly decline has further contributed to the lowering of borrowing costs for those seeking to purchase homes, compared to the two-decade highs near 8% observed in October when yields on the 10-year Treasury note, a key determinant of U.S. home loan rates, were on the rise.
The trend of rising yields, which persisted for several months, underwent a sharp reversal last week following announcements from the U.S. Treasury stating that upcoming debt issuance would be somewhat less than initially anticipated. Additionally, the Federal Reserve decided to maintain its key overnight policy rate for a second consecutive meeting, adopting a more dovish stance in the November Federal Open Market Committee (FOMC) statement.
Joel Kan, the MBA’s vice president and deputy chief economist, explained, “Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC statement, and data indicating a slower job market.”
The MBA’s mortgage market composite index, which gauges the volume of mortgage applications for both home purchases and refinancing of existing loans, increased by 2.5% from the previous week, reaching a value of 165.9.
While purchase applications saw a 3% increase on the week, they remain 20% lower than the levels observed at this time last year. This suggests that potential buyers are still adopting a cautious approach despite the decline in interest rates. Sellers who have locked in lower mortgage rates continue to retain their properties, which is contributing to the limited housing inventory in the market.
(Reporting By Dan Burns and Amina Niasse; Editing by Chizu Nomiyama and Andrea Ricci)