Mortgage rates fall back below 5%

Average mortgage rates dropped under 5% for the first time since mid April over the past week, Freddie Mac reported, as markets and lenders adjust to a "new normal."

The 30-year fixed-rate average fell 31 basis points to 4.99% for the weekly period ending August 4, according to Freddie Mac's Primary Mortgage Market Survey, continuing the trend of steep rises and falls that has seen it fluctuate between 3.22% and 5.81% this year. One week earlier, the 30-year average came in at 5.3%, having decreased from 5.54% seven days earlier. A year ago, it stood at 2.77%.

"Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth," said Freddie Mac Chief Economist Sam Khater in a press release. 

With the announced hike in the federal funds rate coming in as many expected last week, rates actually headed downward and continued that trend over the past several days, as markets tried to decipher words coming from Fed Chair Jerome Powell and other central bank leaders, said Paul Thomas, vice president of capital markets at Zillow. 

"Comments from Federal Reserve Chair Jerome Powell after the meeting were interpreted by many investors as more dovish than prior communications," he said in a research statement. 

Various economic indicators pointing to shrinking gross domestic product, slowing new-home sales and reduced consumer confidence also played a big role in the direction mortgage rates headed.  

"Investors reacted by driving longer-term rates — such as yields on 10-year Treasuries and mortgage-backed securities — lower, predicting the Fed will have to slow down rate hikes and potentially ease rates sooner than previously expected," Thomas said. Ten-year Treasury movements often correspond closely to mortgage rates. 

Although unpredictability has characterized the home lending and housing markets over the past few months, it may become part of "a new normal," according to Robert Heck, vice president of mortgage at online broker Morty. "And it looks very different from the frenzied activity of the past two years,"  he said in an emailed statement.

Clear signs of moderating price growth and rising inventory have already emerged this summer. "While it may take years to play out, the Fed has made it clear that they will continue taking the necessary action to bring down inflation. The market has largely adjusted to this dynamic already," Heck said. 

The mortgage industry, therefore, shouldn't be surprised if some volatility persists, Khater said. "The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment."

Alongside the drop in the 30-year average, the 15-year fixed-rate also declined by a sizable margin week over week, falling to 4.26% from 4.58%. A year ago, the 15-year average came in at 2.1%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage also decreased, dropping for the fourth straight week. The 5-year ARM average inched down 4 basis points to 4.25% from 4.29% seven days earlier. In the same weekly period last year, the average stood at 2.4%.