Why Mortgage Rates Are Dropping

After the Federal Reserve raised its key interest rate about a month ago, mortgage rates were expected to increase as well. Instead, they've been dropping in recent weeks. The 30-year fixed-rate mortgage averaged 4.08 percent last week, its lowest point so far in 2017 and its fourth consecutive week for declines, Freddie Mac reported.

When the Fed raises its federal funds rate, it becomes pricier for banks to borrow money, which generally leads to higher borrowing rates for consumers. Mortgage rates, on the other hand, tend to coincide more with the 10-year Treasury note. Lately, investors have been buying them up, and the higher demand has been sending mortgage rates lower, CNNMoney reports. The 10-year Treasury yield is about 2.23 percent; a month ago, it was about 2.62 percent. Mortgage rates have moved lower as the 10-year Treasury has inched lower.

"We will probably see rates higher at the end of the year—around 4.5 percent," says Len Kiefer, Freddie Mac's deputy chief economist. The lower mortgage rates may have come as a welcome surprise to home shoppers this spring, particularly as many markets' inventory woes are pressing home prices higher overall.

"We know that with every move higher with mortgage rates, it adds to the cost, but that is only going to limit purchases on the margin," Mark Hamrick, senior economic analyst at Bankrate.com, told CNNMoney.

SOURCE: DAILY REAL ESTATE NEWS

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