LOS ANGELES — Recent weeks have seen a downturn in mortgage rates, lending optimism to potential homebuyers just as the spring home shopping season is underway. However, the causes behind this decline — signs of a decelerating U.S. economy and uncertainty surrounding the Trump administration’s import tariffs — cast doubt over future mortgage rate trends.
Joel Berner, a senior economist at Realtor.com, pointed out the persistent high inflation as a barrier to significant declines in mortgage rates. “We do not foresee considerable relief soon due to stubbornly high inflation, exacerbated by the tariffs that the Trump administration appears set on implementing,” Berner stated. Such economic factors weigh heavily on economic projections, as rates decreased from 7.04% in mid-January to 6.63% this week, according to Freddie Mac. Last year’s average was 6.88%.
This week’s average marks the lowest point since December 12 when it was 6.6%. Although there was a brief dip to a two-year low in September, the rates remain significantly higher than the 2.65% record low seen in January 2021. For homeowners looking to refinance through 15-year fixed-rate mortgages, encouraging news emerged with the rate dropping to 5.79% from 5.94% last week. A year ago, it stood at 6.22%.
Multiple elements, including bond market expectations on inflation, demand for U.S. Treasurys, and Federal Reserve policies, shape mortgage rates. The recent drops align with trends in the 10-year Treasury yield, used by lenders for setting home loan prices. The yield has declined since mid-January’s 4.79% due to economic growth concerns and implications of Trump’s tariff strategies on major trading partners. As of Thursday afternoon, it hovered at 4.30%.
Despite the bond market’s easing fostering lower mortgage rates attractive to buyers, future rate directions are unpredictable. Tariffs can elevate inflation, potentially inflating the 10-year Treasury yield and consequently mortgage rates. Investors demand higher returns when inflation persists, and the Fed’s cautious stance on inflation and Trump administration policies further adds to the uncertainty.
Thus far, the year’s steady mortgage rate decrease hasn’t spurred home sales notably. January saw a dip in sales of pre-owned U.S. homes as higher mortgage rates and prices discouraged potential buyers despite increased housing stock. Moreover, January’s all-time low pending home sales suggest further declines may lie ahead.
Nevertheless, a recent Mortgage Bankers Association report revealed a 20.4% surge in mortgage applications from the prior week, with refinancing activity jumping 37%. Though seasonal application increases are typical, the significant rise insinuates that falling rates are drawing some hesitant purchasers.
The timing of this rate decrease coincides with substantial inventory growth and slower national price increases, along with drops in cities such as Austin, Dallas, and Tampa, Florida. Despite possibly more enticing mortgage rates, economic and labor market instability might still deter potential buyers.
“Inflation remains troubling, yet economic indicators show signs of weakness,” remarked Daryl Fairweather, chief economist at Redfin. “For the housing market, these factors together make buyers hesitate to leap in.”
