After months of relentless interest rate hikes and dwindling volumes, the U.S. mortgage market is finally glimpsing light at the end of a long tunnel.
Recent data from the Mortgage Bankers Association (MBA) indicates a significant drop in mortgage rates, hinting at improved affordability and a potential revival in the housing market.
Key Developments In The US Mortgage Market
1. Drop In 30-Year Fixed Mortgage Rates:
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) declined to 6.83% in the week ending Dec. 15, 2023.
- This rate marks a sixth-straight week of declines and a new low since June 2023.
- Mike Fratantoni, MBA's SVP chief economist, attributes this decrease to positive news about inflation reduction and the Federal Open Market Committee's (FOMC) pivot towards rate cuts.
- In its last meeting of the year, the Fed signaled that the median preferred interest-rate path suggests cuts totaling 75 basis points in 2024 and an additional reduction of 100 basis points in 2025.
- U.S. Treasury bond yields have significantly fallen, with the 10-year Treasury yield dropping from 5% in October to 3.90% as of Dec. 20, pushing long-term mortgage rates lower.
- While a 1.5% slowdown in the pace of new mortgage applications occurred last week, a year-over-year comparison shows a more favorable trend. The number of mortgage applications for purchasing a home, or refinancing one, are up by 18% compared to the same period last year.
Sector Performance
Lately, stocks in the real estate sector have experienced an impressive surge, with the Real Estate Select Sector SPDR Fund (NYSE: XLRE) climbing 24% since late October. Particularly noteworthy within this sector is the performance of companies heavily influenced by residential mortgage rates. This segment, represented by the iShares Mortgage Real Estate ETF (NYSE: REM), has experienced a 30% increase in the same timeframe.
Standout performers in this sector include Arbor Realty Trust Inc. (NYSE: ABR) and Claros Mortgage Trust Inc. (NYSE: CMTG), which have seen their stock prices soar by 29% and 39%, respectively.