Mortgage rates slip again on positive economic outlook

Mortgage rates stayed in the same range they have remained in for the last several weeks, crawling back down 6 basis points for the week of Feb. 1, Freddie Mac said. But in the wake of the Federal Open Market Committee's decision to stay pat on short-term rates, the benchmark 10-year Treasury yield slipped back under 4% and was down nearly 14 basis points through late morning on Thursday.

Freddie's Primary Mortgage Market Survey for the 30-year fixed rate loan fell to 6.63%, down from 6.69% seven days prior but up from 6.09% for the same week last year.

The 15-year FRM was down 2 basis points week-over-week to 5.94%. For this time frame in 2023, this loan averaged 5.14%.

Meanwhile, the 10-year Treasury was 3.83 at 11:45 a.m. on Feb. 1, down from 3.97% on Jan. 30 following the FOMC announcement. On Jan. 26, the yield was 4.16%.

"Although affordability continues to impact homeownership, the combination of a solid economy, strong demographics and lower mortgage rates are setting the stage for a more robust housing market," said Sam Khater, Freddie Mac's chief economist, in a press release. "Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation we expect rates to decline further."

Zillow's rate tracker put the 30-year FRM at 6.14% on Thursday morning, down 2 basis points from Wednesday and 24 basis points lower than last week's average of 6.38%.

"Mortgage rates eased this week for the first time in 2024 as new employment cost data suggest a continued loosening of the labor market and more disinflation in the near term," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a statement sent out Wednesday night. 

"Although the FOMC opted to hold the line again, the incoming economic data suggests more disinflation is on the way and rate cuts could be appropriate in the coming year," he added.

Mortgage rates aren't expected to rise further if inflation and economic activity both continue to moderate. "If layoffs remain low, and mortgage rates ease, housing market activity should rebound modestly this spring – meaning more listings coming on the market and more sales," Divounguy said.

Keefe, Bruyette & Woods analyst Bose George is not as positive about the FOMC's decision's impact on mortgage rates.

"The current interest rate environment remains challenging for mortgage volumes, which is negative for mortgage originators and title insurers," George wrote in a note dated Jan. 31. "Conversely, it should be beneficial for mortgage servicing-heavy names."

Khater has a different take. "The economy continues to outperform due to solid job and income growth, while household formation is increasing at rates above pre-pandemic levels," the Freddie Mac economist said. "These favorable factors should provide strong fundamental support to the market in the months ahead."