When the average mortgage rate bottomed out in late February at 5.99% – business was booming!
We saw a huge influx of refinances AND purchases – reminding us once again of how incredibly sensitive today’s purchase market is to interest rates.
And then… the bombs fell, and rates shot up, putting a damper on the boom.
But – despite the higher rates, there remains much to be grateful for:
1. Rates were 1/2% higher last year at this time!
Today’s average mortgage rate, per Mortgage News Daily, is about 6.4%. The average rate one year ago, however, was 6.91% – and it was on its way to peaking at 7.08% only a few weeks later.
Note, too, that the 10-Year Treasury Yield was very close to where it is now last year.
2. If the spread between the average mortgage rate and the 10-Year Treasury Yield was at 2023 levels, today’s average rate would be 1% higher! (The average rate would be close to 7.4%!)
I’ve mentioned several times how lucky we are to see that spread falling. It peaked at over 3% in 2023, but it is now just over 2%.
The historical spread is 1.7%, so we can expect additional relief.
The spread tightened because the mortgage and bond markets stabilized after inflation settled down, and investor demand for mortgage-backed securities increased.
3. The bond market shrugged off a stronger-than-expected jobs report today.
This is much better news than many people realize, because we have seen hot jobs reports push rates up by as much as 1/4% several times, and as much as 1/2% in early 2023.
The jobs report was a non-factor today for a few reasons:
(1) Investors are less trusting of the data, and the “beat” over the estimate was not that large; and
(2) Bond investors seem convinced the Iran War will soon end, relieving energy market constraints and bringing down the price of oil (the biggest upward driver of rates, as of late).
TLDR: Rates could very easily be a lot higher!
