Investors are optimistic as they believe that US bond yields have reached their highest point and are now on a downward trend. This positive outlook is fueled by recent inflation data for October, which showed a significant softening. As a result, there is growing hope among investors that the Federal Reserve will no longer raise interest rates. This sentiment has led to a rally in treasuries, causing bond yields to fall to levels that were previously predicted by bond strategists for the end of the year. According to Reuters, this decline in bond yields has had a direct impact on the housing market, making it more affordable for potential buyers in the coming months. The yield on the 10-year Treasury note has dropped to 4.50%, just weeks after reaching the 5% mark for the first time since 2007. Consequently, the cost of home loans has also decreased, with the average interest rate on a 30-year fixed-rate mortgage falling from 7.9% to 7.5%, as reported by Freddie Mac. This cooling market is a positive development for both investors and prospective homeowners.
According to some experts, mortgage rates are expected to decrease more rapidly as the gap between conventional 30-year mortgage rates and the 10-year Treasury yield returns to normal. Len Kiefer, Freddie Mac’s deputy chief economist, explained that the increased volatility in the mortgage-backed securities market has contributed to this gap. The uncertainty and fluctuation in rates have led to higher mortgage rates.
Fortunately, the bond market volatility has started to decrease earlier this year, and there is a possibility that bond yields will continue to fall. This could potentially lead to improved home affordability for buyers.
Joel Kan, deputy chief economist at the Mortgage Bankers Association (MBA), predicts that the average 30-year fixed-rate mortgage for the fourth quarter of the year will be around 6.2%. Additionally, it is expected that the 10-year Treasury yield will decrease further by the end of 2023.
The MBA’s Purchase Applications Payment Index revealed that the national median mortgage payment in September dropped by $15 compared to August. This decline comes after a slight increase in payments to $2,170 in July. Over the years, the median mortgage payment has steadily risen and is now 11% higher than the previous year.
According to Reuters, many economists predict that rates will continue to remain above 3.5%, which was the median for the past decade. Despite this, there seems to be an improvement in home loan affordability.
In recent news, the Federal Reserve decided to maintain its benchmark overnight policy rate between 5.25% and 5.50% for the second consecutive meeting. This decision was made in hopes of achieving a soft landing for the economy, allowing yields to decrease and credit costs to lower as economic data softened. The aggressive rate hikes were expected to come to an end.
Kan, an expert in the field, mentioned that there are indications of a cooling trend on the horizon, particularly in the manufacturing and services sectors. He believes that there might be a significant slowdown in the services sector and an overall loosening of credit throughout the economy if job and wage growth start to cool down.
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