Positive news emerged for U.S. homebuyers as the average interest rate on 30-year fixed-rate mortgages declined to 6.50% in the week ending August 16. This marks the lowest level since early May 2023, according to the Mortgage Bankers Association. The decrease in mortgage rates is linked to a dip in long-term Treasury yields, driven by market expectations of multiple rate cuts from the Federal Reserve this year. Last week, the 30-year Treasury yield fell by 7 basis points, on track for a fourth consecutive month of declines. This month, the long-dated Treasury bond has seen its yields drop by about 25 basis points, reaching 4.05%.
However, this rate drop hasn’t led to a surge in mortgage application activity. After two weeks of robust growth, applications fell sharply. Many potential homebuyers are likely in a holding pattern, awaiting more clarity on the Federal Reserve’s future policy direction, which could be hinted at during the upcoming Jackson Hole Symposium.
Despite the reduced 30-year fixed mortgage rate, overall mortgage applications declined by 10.1% compared to the previous week. This somewhat erases the significant 25% gain observed over the prior two weeks. Refinance applications, which are more sensitive to interest rate fluctuations, dropped by 15%, erasing a 35% surge from the previous week. Similarly, applications for home purchase mortgages fell by 5%, adding to the 8% decline from the prior week.
The broader real estate sector, as tracked by the Real Estate Select Sector SPDR Fund (XLRE), was up 0.3% during premarket trading on Thursday, on track for its highest level since September 2022. Top-performing stocks within the XLRE ETF included CBRE Group, Inc. (CBRE), up 1.1%, and Crown Castle Inc. (CCI), up 0.9%.
Looking closer at mortgage-linked industries, the iShares Residential and Multisector Real Estate ETF (REZ) was flat after closing on Tuesday at its highest level since mid-September 2022. Major premarket gainers within the REZ ETF included Healthcare Realty Trust Inc. (HR), up 1.3%, Sabra Health Care REIT, Inc. (SBRA), up 1.1%, and Universal Health Realty Income Trust (UHT), up 13%.
Other mortgage-sensitive stocks, such as Redfin Corp. (RDFN) and Zillow Group Inc. (ZG), were 1.2% and 0.2% higher, respectively.
