The 15-year fixed-rate average fell to 3.46 percent with an average 0.5 point. It was 3.51 percent a week ago and 4.06 percent a year ago. The five-year adjustable rate average dropped to 3.60 percent with an average 0.4 point. It was 3.68 percent a week ago and 3.80 percent a year ago.
Several factors are exerting downward pressure on mortgage rates. Investors are anxious about the continuing irresolution of the U.S.-China trade dispute. They are worried about Brexit and European economic growth in general, which they fear could tamp down domestic growth. They are also concerned a recession may be near.
All of this is causing an increased demand for U.S. Treasurys, driving bond prices up and yields down. The yield on the 10-year Treasury fell to 2.25 percent on Wednesday, its lowest level since September 2017.
“Yields plummeted to 20-month lows in recent days as investors — who continue to weigh risks surrounding the U.S.-China trade negotiations, Brexit and slowing European economic growth — accelerated their flock to the safe haven of Treasurys,” said Matthew Speakman, a Zillow economic analyst. “The inversion of the yield curve exacerbated this behavior. Typically, this would result in sharp declines to mortgage rates but thus far their response has been fairly muted, and rates did not fall by as much as bond yield declines would predict.”
An increasing number of experts are convinced the Federal Reserve will cut interest rates later this year. But for now, many expect mortgage rates’ slump to continue. Bankrate.com, which puts out a weekly mortgage rate trend index, found that more than half of the experts it surveyed say rates will go down again in the coming week.
“While we may see a day or two correction to a market which is very much overbought, the general trend to higher Treasury prices and lower yields should continue,” said Dick Lepre, senior loan officer at RPM Mortgage in San Francisco. “We are headed toward a 2 percent 10-year yield. I do not believe that this is simply an indication of increased recession probability. This is more about lack of confidence in the economies of most of the rest of the world. The consequence is flight-to-quality buying of U.S. Treasury and MBS debt as evidenced not only by falling yields but the very strong U.S. dollar.”
Meanwhile, despite falling rates, mortgage applications pulled back. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 3.3 percent from a week earlier. The refinance index fell 6 percent from the previous week, while the purchase index dipped 1 percent.
The refinance share of mortgage activity accounted for 39.7 percent of all applications.
“Purchase mortgage applications continued their impressive streak — now at 15 weeks — of year-over-year increases,” said Bob Broeksmit, MBA president and CEO. “Despite the ongoing decline in mortgage rates, however, purchase and refinance activity slipped from the previous week. Overall demand remains healthy, but prospective buyers — especially first-time buyers — still face low inventory, higher home prices and stiff competition.”