Earlier this week, Freddie Mac reported that mortgage rates had fallen rapidly over the course of the week.
The government-sponsored entity that buys mortgages on the secondary market tracks trends in mortgage rates. Its data showed that the average interest rate on a 30-year fixed-rate loan fell from 5.7% last week to 5.3% this week.
This decline rate was the biggest decrease since 2008, and it’s a reversal of recent trends, which have seen financing costs increasing rapidly since the heart of the pandemic.
However, home buyers shouldn’t get too excited. There are two important reasons why this news isn’t necessarily a positive thing.
1. Rates dropped due to fears of a recession
The first big reason why homeowners shouldn’t be too happy about the big rate decrease relates to the reason behind it.
Specifically, mortgage rates experienced such a rapid decline because fears of a recession are growing. A recession is a prolonged economic downturn, often marked by two quarters of declining gross domestic product (GDP). Because many investors are afraid of a recession, they are flocking to buy U.S. Treasuries.
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Treasury yields fall as prices increase, so this rapid rise in the number of investors interested in buying Treasury notes has driven down yields. And mortgage rates closely…
