30-year fixed rate falls 24 basis points

Volatility has been the key characteristic of mortgage rates this summer, and true to form, the 30-year average made another large swing over the past seven days.

The 30-year fixed-rate dipped 24 basis points to average 5.3% for the weekly period ending July 28, according to Freddie Mac’s Primary Mortgage Market Survey. One week ago, the average stood at 5.54%, while in the same time frame of 2021, it came in at 2.8%.

Markets had already largely priced in an expected increase in the federal funds rate this week, so the central bank announcement of a 75-basis-point hike had less influence on movement than what might normally be expected. 

“We believe the residential mortgage market will take this increase in stride,” said attorney Marty Green, principal of Polunsky Beitel Green, in a statement. “There are no surprises here.”

Instead, investors seemed focused on what might come ahead, according to Paul Thomas, vice president of capital markets at Zillow, as the Federal Reserve tries to find the right formula that quells inflation without causing a severe slowdown of economic growth. Fed Chair Jerome Powell gave limited guidance about what the rest of the year might hold, saying it would depend on the data.

“​​While labor markets are still tight and inflation readings high, investors are pricing more risk of recession into medium- to long-term interest rates, believing the Fed will have to pivot away from further rate hikes in the future,” he said in a research statement.

The latest release of gross domestic product numbers appears set to throw more confusion in the mix. The Department of Commerce reported the U.S. economy contracted for the second consecutive quarter, shrinking 0.9% between April and June, after consensus estimates pointed to slight growth.

“There is a tug-of-war in market expectations,” according to Mike Fratantoni, chief economist at the Mortgage Bankers Association, and the news may apply downward pressure on rate movements. “As a result, mortgage rates may have already peaked,” he said.  

Rate direction depends on how markets make sense of what seems like contradictory economic readings.

“Investors will be analyzing comments from the Fed this week for any indications of more hawkish or dovish language that could impact interest rate expectations,” Thomas said. 

As housing demand has noticeably cooled due to the impacts from rising interest rates and inflation, lenders are hoping any downward movement could tempt some buyers back into the market.

“The question is whether the slowdown is a result of most consumers simply pausing a purchase decision while they see where interest rates and home prices settle or whether they are having to delay a purchase decision indefinitely because of affordability concerns,” Green said.

As the 30-year average took a sizable drop, so did the 15-year fixed rate, which fell to 4.58% from 4.75% a week earlier. One year ago, the 15-year average came in at 2.1%.

Meanwhile, the 5-year Treasury-indexed hybrid adjustable-rate mortgage also edged down by a smaller margin, decreasing for the third consecutive week. The 5-year ARM averaged 4.29% from 4.31% seven days earlier. In the same weekly period last year, its average was 2.45%.