Mortgage Rates Fall Sharply after Negative GDP Report and Fed’s Latest Hike

Just one day after the Federal Reserve raised its benchmark rate, mortgage rates took a sharp turn lower.

The average rate on the popular 30-year fixed mortgage fell to 5.22% on Thursday from 5.54% on Wednesday, when the Fed announced its latest rate hike, according to Mortgage News Daily. The rate fell even further Friday to 5.13%. Rates hadn’t moved much in the days leading up to the Fed meeting earlier this week, but they had been slowly coming off their most recent high in mid-June, when the 30-year fixed briefly crossed 6%.

“This is an exceptionally fast drop!” wrote Matthew Graham, COO of Mortgage News Daily. “Perhaps even more interesting (and uncommon) is the fact that mortgage rates have dropped faster than U.S. Treasury yields. It’s typically the other way around as investors flock first to the most basic, risk-free bonds.”

Graham said the big picture shift in rates over the past month has created a situation where investors greatly prefer to be holding mortgage debt with lower rates.

“In a way, mortgage investors are trying to get ahead of the game. If they’re holding mortgages at a higher rate, they will lose money if those loans refinance too quickly,” he added.

The question now is whether the market is in a new range, and rates will settle where they are now.

“If rates reverse course, volatility could be just as big going in the other direction,” Graham warned. He also noted that mortgage rates could move even lower if economic data continues to be gloomy and inflation moderates.