One of the expected consequences of tighter Federal Reserve monetary policy was higher borrowing rates for consumers.
In December, the Fed tightened monetary policy by raising its target short-term interest rates. Interestingly, however, long-term interest rates have actually been coming down since that event. (This phenomenon where the difference between short-term and long-term rates decreases is referred to as a flattening yield curve.)
This has been good news people looking to secure long-term loans.
On Thursday, Freddie Mac reported that mortgage rates across the country have been tumbling in recent weeks.
“The 30-year mortgage rate dropped 11 basis points to 3.81%, the lowest rate in three months,” Freddie Mac’s Sean Becketti said.
“This drop reflected weak inflation — 0.7 per cent CPI inflation for all of 2015 — and nonstop financial market turbulence that is driving investors to the safe haven of Treasuries,” Becketti added.
Indeed, the recent market activity suggests investors and traders have been dumping stocks and buying bonds. When bond prices go up, yields come down; this means interest rates are coming down.
Here’s more colour from Freddie Mac:
30-year fixed-rate mortgage (FRM) averaged 3.81 per cent with an average 0.6 point for the week ending January 21, 2016, down from last week when it averaged 3.92 per cent. A year ago at this time, the 30-year FRM averaged 3.63 per cent.
15-year FRM this week averaged 3.10 per cent with an average 0.5 point, down from 3.19 per cent last week. A year ago at this time, the 15-year FRM averaged 2.93 per cent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.91 per cent this week with an average 0.5 point, down from last week when it averaged 3.01 per cent. A year ago, the 5-year ARM averaged 2.83 per cent.
This should ease concerns that tighter monetary policy will take the legs out of the housing market.
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