Mortgage rates held steady this week at 3.65 percent for a 30-year, fixed-rate loan. It’s the first time all year that rates didn’t fall in Freddie Mac’s weekly survey of lenders.
Rates fluctuate all the time, and there are a multitude of ways to track them, but economists look to Freddie’s survey as a key benchmark of which way they’re moving.
Clearly they’ve been moving down. And here’s more good news. Mortgage costs tend to fall when the cost of government borrowing falls, and government borrowing is incredibly cheap right now. This week, the yield on a 10-year Treasury is about 1.78 percent, meaning the U.S. is paying its creditors next to nothing.
Why would anyone loan money and collect only 1.78 percent interest? Because they’re confident the government will pay the money back. It’s a low-risk bet. And in this age of global economic turmoil, those safe bets are in high demand. Investors are willing to sacrifice profit to protect their money.
As we’ve said, mortgages tend to get cheaper when Treasuries get cheaper. But look at this chart, which shows how much cheaper Treasury yields and mortgage rates have gotten since last summer. The 10-year Treasury has dropped 54 basis points since the beginning of this year. Mortgage rates have fallen only 36 basis points, according to Freddie Mac.
Will mortgage rates drop to catch up with falling yields? History suggests they will. And just in time for spring house-hunting.
— With Tim Decker
