Mortgage Rates Had Their Biggest Drop Since 2008 This Week. Here’s Why Experts Say That Won’t Last

A photo to accompany a story about mortgage rate trends David Paul Morris/Bloomberg via Getty Images
A "For Sale" sign in Crockett, California, on June 14, 2022.
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Mortgage rates saw their biggest one-week drop in years this week, and a big reason is the same thing that has caused rates to rise so dramatically this year: inflation.

But while the last couple of weeks have seen a drop in rates away from 6%, the future just holds more uncertainty and potential turbulence because of broad economic factors, experts say.

“I really think this comes down to inflation,” says Robert Heck, vice president of mortgage for Morty, an online mortgage broker. That’s because inflation determines what’s next for the Federal Reserve’s rate hikes, and the mortgage markets are pricing in those expected Fed changes.

The average 30-year fixed mortgage rate this week fell 30 basis points to 5.55%, according to a survey by Bankrate, which like NextAdvisor is owned by Red Ventures. Rates have come down significantly since they nearly hit 6% in June

In a similar survey by the government-sponsored entity Freddie Mac, the average 30-year fixed rate dropped even more, falling 40 basis points to 5.3%. It’s the biggest one-week drop since 2008. That’s the lowest since early June, erasing the big jump in the middle of last month. 

The surge in mid-June was caused by an unexpectedly bad inflation report – the Consumer Price Index put the year-over-year rate at 8.6% in May, the highest in four decades. That led to a 55-point jump in mortgage rates just ahead of the Federal Reserve’s announcement that it would raise its benchmark short-term rate by 75 basis points to address inflation. 

Since then, other data have pointed to better inflation figures, prompting lenders to cut rates in anticipation that the situation might be starting to turn around, Heck says. “If inflation data is favorable or if it shows signs of cooling off, we should see rates continue at the levels they are or drop a bit,” he says. “If (inflation figures) start going higher, there’s almost equal probability that we go back to levels we were seeing last month and potentially higher, depending on how bad the economic data is showing.”

Despite the drop, the mortgage market is facing a lot of volatility, with rates moving up and down quickly. That isn’t likely to change, Heck says. “I think there’s been a lot of talk toward an upcoming recession,” he says. “I think that is still very much up in the air and that’s why the market continues to be volatile.”

Pro Tip

A momentary dip in rates might not be worth suddenly jumping into the housing market, but if you’re already in the process, it could be a good time to lock your rate to guard against future increases.

What Do These Mortgage Rates Mean For Homebuyers?

The volatility of mortgage rates and the rest of the housing market right now means buyers should “focus on taking a step back and looking at the overall transaction,” Heck says. “Trying to time the market right now is dangerous and it’s not something you should be spending your time on.”

Your mortgage, and particularly the mortgage rate, is just one piece of the decision involving buying a home. The rest of it, including the price you pay for the home and the decision to buy one in the first place, is also important, Heck says. He cautions against prospective homebuyers “jumping off the sidelines” just because of a dip in rates.

The strategy changes if you’re already buying a house, Heck says. Buyers who are already in the process of getting a home, perhaps already in contract, could take the advantage of a dip in rates to lock their rate. That can protect you against the risk they’ll go back up quickly. “Any time you see rates come down like this it’s potentially a good opportunity for somebody to lock in their rate, especially if you’re already in contract and moving forward toward your home,” he says.