Mortgage rates reaching 7% late last year eroded affordability for millions of people who would like to purchase a home. But in recent days mortgage rates have dropped, and it can all be traced to investor worries about banks.
The fear that more banks could be at risk and drag down the economy has caused investors to sell stocks and put their money into U.S. Treasury bonds. Not only are the bonds backed by the full faith and credit of the U.S. government, but many bonds are also paying over 4%.
So how does that help homebuyers? Because the more money flowing into the 10-year Treasury note, the lower the interest rate the government has to pay investors. And because mortgage rates are keyed to the 10-year bond, when the 10-year yield goes down, so do mortgage rates.
Rates are falling
Earlier this week, Mortgage Daily News reported the average 30-year fixed-rate mortgage had fallen from 6.76% last Friday to 6.57%. A day later Credible, another interest rate monitor, reported the average mortgage rate had fallen to 6%, saving a new buyer well over $100 a month on the median-priced home.
As you might expect, that’s causing more people to apply for mortgages. The Mortgage Bankers Association (MBA) reports applications increased by 6.5% last week from the previous week. There were even more borrowers refinancing their mortgages.
“Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds,” said Joel Kan, MBA’s vice president and deputy chief economist. “This decline pushed mortgage rates for all loan types lower, with the 30-year fixed rate decreasing to 6.71 percent.”
But what about home prices?
While interest rates are coming down, home prices remain high. But the latest evidence suggests that situation is improving as well, at least among the most expensive homes.
According to Zillow, the number of U.S. cities where the typical home costs $1 million or more has declined from last summer’s peak. Fifty-eight markets that were in that exclusive club in July no longer are.
But even buyers in less-expensive housing markets are seeing some relief. The typical U.S. home is worth 4.1% less than it was last July, according to the Zillow Home Value Index. In current million-dollar cities, the typical home has lost 6.3% of its value during that time, on average.