Hey there! Hope you and yours had a great Labor Day weekend! Welcome back, and I’ve got great news for anyone thinking about buying a home or refinancing: average mortgage rates have fallen to their lowest levels in more than 10 months. This is a significant development that has been driving increased interest from prospective homebuyers, so I wanted to break down what’s happening and what you can expect in the coming weeks.
The Fed’s “Powell Pivot”
A major factor in this positive shift was the recent speech by Federal Reserve Chair Jerome Powell at the Jackson Hole economic symposium. His comments were interpreted by the market as a strong signal that a rate cut is coming at the September 17th Fed meeting. Before the speech, the probability of a rate cut was below 70%, but it has since jumped to nearly 90%.
Powell’s remarks also eased inflation fears, stating that the effects from recent tariffs would be “relatively short-lived.” This combination of signals led to a rally in the bond market, which can directly benefit us with improved mortgage rates.
The Mortgage Spread Narrows
Another key reason for the drop in rates is that the spread between the 10-year Treasury note and 30-year mortgage rates has narrowed to its lowest level in three years.
You can think of the mortgage spread as the extra risk premium lenders add to the 10-year Treasury yield when setting a mortgage rate. This spread accounts for things like the risk of a borrower defaulting or refinancing early. When market confidence improves and lenders feel less risk, this spread shrinks. This is exactly what’s happening right now, pulling mortgage rates closer to the lower Treasury yields.
Freddie Mac’s Chief Economist, Sam Khater, noted, “Mortgage rates are at a 10-month low… Though many potential homebuyers still face affordability challenges, consistently lower rates may provide them with the impetus to enter the market.” This is supported by data from the Mortgage Bankers Association, which shows that despite a slight dip in overall applications, purchase activity is up 25% compared to the same time last year.
The increase in purchase activity and average loan size suggests that buyers are becoming more active. They seem to be less sensitive to the current rate environment, likely due to more available homes and slowing home price growth.
Looking Ahead: Expect Volatility
While the recent rate stability has been a welcome relief, we are heading into a potentially volatile week. A very important jobs report is scheduled for release next Friday. The previous jobs report was seen as a major catalyst for the recent rally in rates, so this new data will be watched closely and could cause significant market movement.
The bond market is also dealing with some post-holiday noise and external pressures, like higher inflation in the EU and some legal uncertainty around tariffs. While these factors are creating some upward pressure on rates, the overall picture remains positive for now, with mortgage rates poised to reach an 11-month low.
The bottom line is that while rates are at a great level, their stability is likely to be tested in the coming days. If you’ve been on the fence, this may be a good window of opportunity to explore your options.
Please don’t hesitate to reach out if you have any questions or would like to discuss what this means for your specific situation. I personally monitor my inbox, so feel free to send me an email or text/call me directly at 818.307.6072
