Mortgage rates sink at fastest weekly pace in a year

Mortgage rates fell this week at their fastest weekly pace in a year, giving some relief to the strained housing market as economic conditions soften.

The standard 30-year, fixed-rate mortgage dropped from 6.5 percent last week to 6.35 percent this week, the lowest level since October of last year, according to data from government mortgage securitizer Freddie Mac.

Demand for mortgages rose to a multiyear high with the falling interest costs, mortgage bankers observed.

“Borrower demand surged to a three-year high last week, following a decline in mortgage rates to their lowest level since last October,” Mortgage Bankers Association President Bob Broeksmit wrote in a Thursday commentary.

Refinancing applications were also up as mortgage holders sought to lower their monthly payments, Broeksmit noted.

The 30-year mortgage rate is benchmarked to the yield on the 10-year Treasury note, which has been falling as economic conditions have softened over the past several months.

Treasury yields are set by expectations for shorter-term interest rates set by the Federal Reserve, which is expected to lower the overnight interbank lending rate by a quarter-percent at its meeting next week.

Futures markets are expecting the cut with 92 percent probability as of 10 a.m. EDT Friday.

The rate cut would follow a weakening in employment conditions, which have been cooling at a rapid pace. The U.S. economy added just 22,000 jobs in August, bringing the three-month average down to 29,000 jobs added per month between June and August.

The lower hiring is due to fewer available workers in the economy as a result of an immigration crackdown, increased hesitance from employers amid policy uncertainties caused by tariffs, as well as regular cyclical factors following the robust recovery from the pandemic.

Lowering the short-term interest rate would make commercial financing cheaper, which boosts profit rates to dampen the business cycle and spur investment.

The Fed’s rate-setting committee also has to worry about rising inflation, which popped in the consumer price index last month to a 2.9 percent annual increase from 2.7 percent in July. Rate cuts could be touch-and-go for the rest of the year, though many economists predict multiple cuts.

“The [Federal Open Markets Committee] remains torn over how to balance a rise in higher downside risk to the real side with the anxiety over the pattern and incidence of inflation from tariffs and other Trump reforms such as immigration,” economists for the LH Meyer monetary policy group wrote Wednesday.