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Mortgage rates fall to 5.10% in biggest drop since 2020

Rates on 30-year fixed-rate mortgages have dropped 20 basis points in two weeks, the most dramatic decline since April 2020

Mortgage rates decreased for the second week in a row, according to a report released Thursday, as the U.S. economy faces multiple headwinds and the housing market shows signs of slowing for the first time in years.

Since hitting a 2022 peak of 5.30 percent during the week ending May 12, rates on 30-year fixed-rate mortgages have fallen by 20 basis points, averaging 5.10 percent during the week ending May 26, according to a weekly survey of lenders by Freddie Mac.

That’s the most dramatic two-week drop in rates in Freddie Mac’s survey since April 2020, when the beginning of the pandemic turned the economy on its head.

Mortgage rates retreat from 2022 peak

Weekly average mortgage rates as of May 26, 2022. Source: Freddie Mac.

Freddie Mac’s survey is based on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Borrowers with less than perfect credit, or making smaller down payments, are typically offered higher rates.

Investors seeking safety from Tuesday’s stock market sell-off bought bonds and mortgage-backed securities, pushing yields down this week. But Freddie Mac’s survey mostly reflects rates offered Monday through Wednesday.

Rates were climbing again Thursday as investors digested news that the economy contracted in the first quarter, and minutes from the Federal Reserve’s last meeting, which suggested that the Fed is committed to gradual tightening of monetary policy, Reuters reports. After dipping as low as 2.71 percent on Wednesday, yields on 10-year Treasurys — often a good indicator of where mortgage rates are headed next — were climbing toward 2.78 percent in afternoon trading Thursday.

“Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods,” Freddie Mac Chief Economist Sam Khater said in a statement.

“Mortgage rates leveling off is a lifeline for prospective homebuyers already dealing with inflation and record-high listing prices, and welcome news for the housing market at large,”

The drop in mortgage rates comes just as the red hot housing market was showing signs of undergoing a shift, with sales of new homes charting a two-year low this week, dropping 16.6 percent month-over-month and marking the fourth straight month of declines. Existing homes, meanwhile, have charted sales declines for three consecutive months, a period that saw mortgage rates rise 2.4 percent.

The decline should be welcome news for homebuyers and the housing market, experts said, and could help prevent homebuilders from pulling back and exacerbating the existing housing shortage.

“Mortgage rates leveling off is a lifeline for prospective homebuyers already dealing with inflation and record-high listing prices, and welcome news for the housing market at large,” senior economist research analyst Joel Berner said in a statement. “The current slowdown in the market, while increasing the number of homes for sale, may actually exacerbate the existing overall housing shortage in the long term, if the news causes builders to pull back…Dark and stormy is the current mood, but a period of steadier rates below recent highs will give buyers, sellers, and builders alike the time to adjust to the new financial environment.”

While the drop is the most dramatic in years, rates are still significantly higher than they were in 2021, sitting at just 2.95 percent a year ago.

Berner noted that a monthly payment on a $300,000 home is still $372 more expensive than it would have been a year ago, and that with housing prices shooting up dramatically over the last year, $300,000 in today’s market gets you a lot less than it did last year.

So far lower mortgage rates don’t appear to have sparked homebuyer interest, according to a weekly Mortgage Bankers Association survey which showed demand for purchase loans was virtually unchanged last week from the week before, and down 16 percent from a year ago.

written by Ben Verde for Inman News

Editor’s note: This story has been updated to clarify that Freddie Mac’s rate survey is weekly, and largely reflects rates offered by lenders Monday through Wednesday.

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