Interest rates

Why Mortgage Interest Rates Have Dropped Lately – Marketplace

One of the obstacles to buying a home lately has been the rising cost of mortgages. The average interest rate on a 30-year fixed mortgage has risen more than 2 percentage points over the past 12 months, according to Freddie Mac, the government-backed mortgage company. But over the past few weeks, those rates have fallen slightly.

Mortgage rates tend to move with the yield on 10-year government bonds, and lately that yield has fallen.

“And that means mortgage rates are coming down as well,” said Mark Fleming, chief economist at First American.

It may seem odd that 10-year bond yields and mortgage rates are falling as the Federal Reserve has raised interest rates.

But many investors worried about a potential economic slowdown bought these safer government bonds, said Winnie Cisar of CreditSights.

“Which means prices are going to go up and yields are going to go down,” she said.

And given the rise in mortgage rates over the past year, Cisar said, demand for mortgages may slow and lenders will need to become more competitive.

“Which means they have to lower mortgage rates to make it more attractive to buy a new home or refinance their existing mortgage.”

Sales of new and existing homes also fell, in line with the Federal Reserve’s goal of slowing demand to cool the economy.

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