Mortgage rates plunge the most in 16 months as bond rally boosts beaten-down housing market

U.S. mortgage rates fell the most in more than a year last week, an industry lobby group said Wednesday, as the sharp slump in Treasury bond yields tied to bets that the Federal Reserve has come to the end of its rate hiking cycle powered a huge boost to home affordability. 

The Mortgage Bankers Association said average 30-year fixed rates for conforming loan balances of less than $726,200 fell by 25 basis points, or a quarter of a percentage point, to 7.61% for the week ending on November 3, a move that marks the biggest week-on-week decline since July of last year. The MBA's average rate hit 7.9% in late October, the highest since 2000. 

The MBA's seasonally-adjusted Purchase Index, which tracks mortgage applications for the purchase of a single-family home, rose 3% from the lowest levels since 1995, while new applications were down 1% on the week and 22% when compared to last year's levels.

Related: Fed holds rates steady, hints at more increases but markets see end of hiking cycle

“Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC statement, and data indicating a slower job market," said the MBA's chief economist Joel Kan.

"Applications for both purchase and refinance loans were up over the week but remained at low levels," he added. "The purchase index is still more than 20 percent behind last year’s pace, as many homebuyers remain on the sidelines until more for-sale inventory becomes available.”

Benchmark 10-year Treasury note yields, which lead the market for 30-year fixed mortgages hit a 2007 high of 5.027% late last month but have  tumbled to a multi-week low of 4.575% in early Wednesday trading as investors pare bets on another Fed rate hike following softer economic data and tamed inflation pressures.

Bond prices move in the opposite direction of yields, and buyers tend to purchase Treasuries when they are more comfortable with slowing inflation prospects. The bond price gains push yields lower, putting downward pressure on mortgage rates. 

The mortgage rate pullback will be a welcome respite for a domestic housing market that the Intercontinental Exchange, owner of the New York Stock Exchange, pegged as the most unaffordable since 1984.

A separate report from online relator Redfin noted that home buyers need 50% more cash than they did before the pandemic in order to buy an average U.S. home. 

September housing starts, however, rose by a bigger-than- expected 7 from August, the Census Bureau said earlier this month, with single-family units up 3.2% to an annual rate of 933,000 amid the ongoing demand for new home construction and dearth of existing home sales.

• Action Alerts PLUS offers expert portfolio guidance to help you make informed investing decisions. Sign up now.