A sell-off in the stock market caused investors to flee to the relative safety of the bond market on Monday morning, causing yields to fall and mortgage rates to rise.
The average interest rate on the popular 30-year fixed-rate mortgage fell to 5.99% on Monday, according to Mortgage News Daily, reaching its lowest level since 2022. At this time last year, the rate was 6.89%.
The decline in yields is due to a combination of factors, including fresh uncertainty over tariffs, cooling inflation and economic weakness reflected in a lackluster gross domestic product report on Friday.
While interest rates briefly dipped into the 5% range for a few hours in January, they rebounded the same day. That’s unlikely this time, according to Matthew Graham, chief operating officer at Mortgage News Daily.
“This visit to the High 5’s looks more sustainable on paper,” Graham said. “Unless there is a major sell-off in the broader bond market, there is a better chance that mortgage rates will remain closer to current levels than last time. And if the broader bond market continues to improve (i.e. the 10-year yield falls below 4.0%), mortgage rates would likely increase gradually.”
The drop in interest rates will likely lead to more refinances, which have surged in recent weeks. According to the Mortgage Bankers Association, there are around 130% more home loan refinancing applications compared to last year.
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Lower interest rates are a positive sign for the important housing market in the spring. Buyers entering the market today will have more purchasing power than they did last spring.
For example, if a buyer pays 20% of the price for a mid-priced home, about $400,000, according to the National Association of Realtors, they would have to pay $1,916 a month for principal and interest. A year ago, that payment would have been $2,105, a difference of $189.
Although the difference in monthly payment may not seem large, more borrowers would generally qualify for a loan at today’s lower interest rates. Realtors chief economist Lawrence Yun noted in his January home sales report that “with mortgage rates near 6%, an additional 5.5 million households that were ineligible for a mortgage a year ago would be eligible at today’s lower rates.”
He cautioned, however, that most newly qualified households do not act immediately, “but based on previous experience, around 10% could enter the market – potentially meaning around 550,000 new homebuyers this year compared to last year.”
To date, there hasn’t been much of a response to lower interest rates when applying for a mortgage to purchase a home. These applications were only 8% higher year-over-year in mid-February.
Correction: This article has been updated to correct that 30-year fixed mortgage rates hit their lowest level since 2022 on Monday. In a previous version the milestone was specified incorrectly.