Mortgage Rates Drop to 6.55 Percent; Biggest Drop in 2 Years

Vince Golle
Bloomberg News (TNS)

U.S. 30-year mortgage rates plunged last week by the most in two years, reaching their lowest level since May 2023 and sparking a surge in refinancing applications.

The contract rate on a 30-year fixed mortgage declined 27 basis points to 6.55% in the week ended Aug. 2, according to Mortgage Bankers Association data released Wednesday. The rate on a five-year adjustable mortgage plummeted 31 basis points to 5.91%, the lowest this year.

An index of refinancing jumped nearly 16% last week to a two-year high of 661.4. Mortgage applications to buy a home increased 0.8%, the first advance in a month. The overall index of applications, which includes the two, climbed 6.9% last week to the highest level since the start of the year.

The decline in rates “should set the stage for a modest recovery in transactions in the rest of the year, providing that recession fears prove unfounded as we expect,” Thomas Ryan, North America economist at Capital Economics, said in a note. “We think this marks a turning point for the housing market, which has been frozen for a while now.”

Mortgage rates track U.S. government securities, and Treasury yields plunged at the end of last week after a dismal jobs report fueled expectations the Federal Reserve will pursue more aggressive cuts in borrowing costs. The rally sparked debate that the central bank will opt for a 50-basis-point rate cut at its September meeting, but policymakers are likely to push back on such a move.

The average 30-year mortgage rate is down 0.74 percentage point from this year’s peak of 7.29% in April. At the same time, still-rising home prices present a headwind for prospective buyers. A further pickup in listings may help limit price growth and reinvigorate sales of previously owned houses.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.

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