Mortgage Rates Fall to 5.30% as Lenders Spy Recession Ahead

Mortgage rates are falling rapidly as fears that a recession is looming have pushed down yields on long-term bonds.

Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, according to mortgage-finance giant Freddie Mac.

The average rate on a 30-year-fixed mortgage fell to 5.30 percent, down from 5.70 percent last week and 5.81 percent in the week before that.

Mortgage rates tend to be closely tied to yields on 10-year U.S. Treasuries, which compete with mortgages for investor dollars and are considered the safest assets in the world. On Monday, the yield on 10-year Treasuries fell to 2.78 percent, the lowest since May.

Yields fall when bond prices rise. So when investors bid up safe-haven assets like Treasurys, yields decline. That tends to send mortgage rates lower. Over time, yields on longer-term Treasuries reflect the expected path of short-term U.S. government debt and the Fed’s target for the overnight bank funding rate.

Many investors had expected the Fed to continue to hike rates through the middle of next year, bringing its target to four percent or more. With signs that the economy is slowing more than expected, that expectation has come down. Market prices now indicate the Fed will stop hiking when its target is below 3.5 percent and may even cut rates to stave off a severe economic downturn next year.

Despite the decline in the past two weeks, mortgage rates remain well above the 3.22 percent seen at the beginning of the year.