Long-Term Rates & Short-Term Relief
Lost in the attention being paid to exactly when and by how much the Federal Reserve will lower the federal funds rate is the fact that interest rates at the far end of the yield curve are already falling. This is due to lower market expectations both for inflation in the long-run and for short-term rates in the near future.
The yield on 10-year U.S. Treasuries, the benchmark long-term interest rate, has trended downward for the last 4 months to just under 4 percent in early September. That is well below the decade-plus highs of last October, when yields were touching 5 percent. Mortgage rates are similarly moving lower. The 30-year fixed rate average fell to 6.4 percent in late August, down nearly 90 basis points from May. Thirty-year mortgage rates were pushing 8 percent last October.
Lower mortgage rates are helping to thaw the frozen housing market. The supply of homes for sale has been hampered by, among other things, a large number of potential sellers who are unwilling to list their homes because they don’t want to give up an existing mortgage at an historically low interest rate. This situation is slowly improving as rates moderate. The number of active residential listings has moved steadily higher this year. At the same time mortgage refinance applications are running at nearly double their pace from this time last year. Refinancing to a lower rate eases household debt service burdens and frees up funds for other uses, a boon to the overall economy.
Of course, lower mortgage rates stimulate demand for homes as well as supply so the impact on housing prices is uncertain. They also won’t by themselves solve one of the economy’s long-standing problems: a housing supply and affordability crisis. But lower rates are certainly a step in the right direction.
September 10th, 2024
