Mortgage Rates Aug. 5, 2024 - Rates Fall to 16-Month Lows

Mortgage Rates In Freefall

Last week saw mortgage rates tumble to their lowest levels this year in response to a weak employment report and fears of a larger economic downturn.

According to Mortgage News Daily, the 30-year fixed rate fell by 0.22% – one of the biggest drops in two decades.

Friday’s rate drop alone would reduce the mortgage payment on a $300k loan by $43 per month.

MND reported a 6.4%, 30-year fixed-rate average as of Friday, Aug. 2, easily besting any rate seen in the past year. Rates haven’t been this low in 16 months.

And rates might not be done falling yet. Global stock markets were in freefall overnight on fears triggered by last Friday’s jobs report. Were confidence to crumble more, we could see those rates fall further and faster than anyone’s been expecting.

What’s Driving Mortgage Rates?

Fear

Last Friday’s jobs report was worse than expected but far from disastrous. Yet markets responded as if the sky were falling.

Globally, markets are in a panic as fears of an American recession loom. The Wall Street Journal (paywall) reports this morning, “Japan’s Nikkei Stock Average closed down 12.4% in its biggest single-day percentage fall since 1987, a historic drop triggered by disappointing U.S. jobs data and a further rise in the yen.”

Domestically, CNN’s Fear and Greed Index stood at 27 overnight, down from 46 a week earlier. Twenty-seven is just two points above “extreme fear” territory.

More fear

All this is terrible for economic confidence. And the danger now is that the fear snowballs over the next few weeks and months, eventually triggering a recession. That would be bad for jobs and prosperity.

But it would be great for mortgage rates. There’s a strong correlation between their falling and the economy being in trouble.

That’s partly because the Federal Reserve is almost bound to try to head off a recession by cutting general interest rates, perhaps repeatedly. And a Sunday article from the Journal said:

“By Friday, traders were pricing in overwhelming odds that the Fed will cut rates by half a percentage point in September. Few had made that wager on Wednesday after Chairman Jerome Powell said that officials needed to see more data.”

Markets’ extreme response to Friday’s jobs report was entirely unexpected, as was the report itself. If the fear that’s been generated increases, we could see mortgage rates fall further and faster than any of the current forecasts suggest.

What To Watch This Week

There may not be much to watch this week beyond the spectacle in markets. Certainly, none of the economic reports on the calendar has the potential to turn around investor sentiment.

The only ones that in normal times might have affected mortgage rates a bit landed this morning. They are two July purchasing managers’ indexes (PMIs) for the services sector. But who’s going to even notice them in the current fevered environment?

Forecasts

In the current mayhem, all bets are off for forecasts. If fear takes hold in markets, we could see much lower rates much sooner than anyone was expecting.

But, just in case things soon return to normal, here’s an edited repeat of last week’s forecasts section:

Fannie Mae and the Mortgage Bankers Association (MBA) updated their forecasts for future mortgage rates on July 22 and 23. And they brought good news.

As recently as May, Fannie was expecting that 30-year, fixed-rate mortgages would average over 7% during the last quarter of this year. Now, it’s forecasting 6.7%. Meanwhile, the MBA is predicting 6.6%.

Better yet, both expect decreases to continue through 2025. Fannie reckons they’ll average 6.4% over the whole of that year. And the MBA thinks that same average will be 6.0% — and 5.8% in 2026.

Of course, it’s hard enough to predict mortgage rates over a month or two — sometimes, a day or two. Over the longer term, the number of variables multiplies, and the results grow less and less reliable.

Note that all rates mentioned are averages and may not be available to every borrower.