A stock market sell-off had investors rushing to the relative safety of the bond market Monday morning, causing yields to drop and mortgage rates to follow.
The average rate on the popular 30-year fixed mortgage fell to 5.99% on Monday, according to Mortgage News Daily, matching its lowest levels since 2022. Last year at this time the rate was 6.89%.
The drop in yields is due to a combination of factors, including new uncertainty over tariffs, cooling inflation and economic weakness shown in a lackluster gross domestic product report Friday.
While rates briefly dipped into the 5% range for a few hours in January, they bounced back that same day. That is unlikely this time around, according to Matthew Graham, chief operating officer at Mortgage News Daily.
“This visit to the high 5’s looks more sustainable on paper,” Graham said. “As long as the broader bond market doesn’t sell-off in any major way, mortgage rates stand a better chance of remaining closer to present levels than they did last time. And if the broader bond market improves further (i.e. 10yr yields dipping under 4.0%), mortgage rates would likely make incremental gains.”
The drop in rates will likely incite more refinancing, which has been surging over the last several weeks. Applications to refinance a home loan are about 130% higher than they were a year ago, according to the Mortgage Bankers Association.
Lower rates are a positive sign heading into the all-important spring housing market. Buyers entering the market today will have more purchasing power than they did last spring.
For example, a buyer putting 20% down on the median priced home, about $400,000 according to the National Association of Realtors, would have a monthly payment of $1,916 for the principal and interest. One year ago, that payment would have been $2,105, a difference of $189.
While the difference in the monthly payment may not seem like a lot, more borrowers would qualify for a loan in general at today’s lower rates. The Realtors’ chief economist, Lawrence Yun, noted in his January pending home sales report that, “With mortgage rates nearing 6%, an additional 5.5 million households that could not qualify for a mortgage one year ago would qualify at today’s lower rates.”
He did make the caveat that most newly qualifying households do not act immediately, “but based on past experience, about 10% could enter the market—potentially adding roughly 550,000 new homebuyers this year compared with last year.”
So far, applications for a mortgage to purchase a home have not seen a major reaction to lower rates. Those applications were just 8% higher year over year in mid-February.
Correction: This story has been updated to correct that Monday’s 30-year fixed mortgage rates matched their lowest level since 2022. A previous version misstated the milestone.
