Many feared the impact on mortgage rates of U.S. debt ratings downgrades. Closely following the overall downgrade of treasury debt ratings, those of Fannie Mae and Freddie Mac also fell. The fear was that there would be an immediate and significant upward movement of mortgage interest rates.
In fact, the result was just the opposite. Even downgraded, U.S. debt is still the safest investment for many, and they left the stock market and rushed into treasuries as the stock market saw huge volatility swings, mostly down. At the same time the Dow was down around 600 points, a survey of lenders reported the average 30 year fixed mortgage rate at 4.44%. And rates dropped more from there.
When investors bring buying pressure to U.S. Treasury securities, there is always a corresponding drop in mortgage interest rates. When a great many big investors and institutions pulled money out of the stock market and moved it into the still-desired safety of U.S. Treasury debt, interest rates dropped, and are hovering at historic lows.
Late on Monday August 8th, the 10-year Treasury note traded at a yield of 2.34%, down from 2.56% the previous Friday, and from 3.0% just two weeks ago. That 10-year yield is the benchmark used to set 30 year fixed mortgage rates. The “flight to quality” is dominating markets and the net effect is lower mortgage interest rates.
Mortgage securities packaged and sold by Fannie Mae and Freddie Mac did see slightly higher interest rate demands by buyers due to the debt rating decrease. However, it wasn’t enough to make up for the interest rate decreases that came with the massive flight to quality. This drop in mortgage rates may not last long if money begins to leave U.S. Treasury notes and move back into the stock market.
If you’re financing a real estate purchase, locking in a rate now could be a really smart move.
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