Mortgage rates are falling sharply after a negative GDP report and the Fed’s recent hike

A for sale sign is placed in front of a home on July 14, 2022 in San Francisco, California. US home sales rose 2 percent in June for the first time since 2019.

Justin Sullivan | Good pictures

A day after the Federal Reserve raised its benchmark rate, mortgage rates took a sharp turn.

The average rate on the popular 30-year fixed mortgage fell from 5.54% on Wednesday to 5.22% on Thursday, when the Fed announced its latest rate hike. Mortgage news daily.

Rates didn’t move much in the days leading up to the Fed’s meeting earlier this week, but they slowed to their most recent high in mid-June, when the 30-year fixed briefly topped 6%.

Thursday’s drop came on the back of a gross domestic product report from the Bureau of Economic Analysis that showed the U.S. economy contracted in the second quarter. This is a widely accepted signal of recession. GDP fell at an annualized pace of 0.9% for the period Preliminary assessment. Economists polled by Dow Jones expect growth of 0.3%.

After the news, investors rushed to the relative safety of the bond market, sending yields lower. Mortgage rates follow the yield on the US 10-year Treasury bond.

“It’s an exceptionally fast fall!” wrote Matthew Graham, COO of Mortgage News Daily. “It’s even more interesting (and unusual) that mortgage rates have fallen faster than US Treasury yields. It’s usually the other way around as investors flock to more fundamental, risk-free bonds first.”

Graham says the big move in rates over the past month has created an environment where investors are more willing to hold mortgages with lower rates.

“In a sense, mortgage investors are trying to get ahead of the game. If they have high-rate mortgages, they’ll 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 were to reverse, the volatility would be just as large as going in the other direction,” Graham warned. He also noted that mortgage rates could move even lower if economic data continues to be gloomy and inflation moderates.

Already, lower rates seem to be having some impact on potential homebuyers. Real estate brokerage Redfin A slight uptick in searches and home tours was reported last month as rates came off their recent highs.

“The housing market now appears to be settling into an equilibrium, with demand slowing,” Redfin chief economist Daryl Fairweather said in a release. “We may still be in for a few more surprises when it comes to inflation and rate hikes from the Fed, but the easing of mortgage rates now should provide some relief to buyers reeling from last month’s rate hike.”

However, the increase in buyer interest did not translate 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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