TURNING THE TIDE: UNEXPECTED INTEREST RATE DROP
Uni First Investment Inc
Uni First Investment Inc Alhambra, CA
Published on June 3, 2021

TURNING THE TIDE: UNEXPECTED INTEREST RATE DROP

Much of the mortgage and housing industry has been focused on the steady mortgage rate increases we have seen since the end of 2018. All predictions have pointed toward a continued rise in the rates for the foreseeable future. So what’s up with the news this week, announcing a big drop in the interest rate? In fact, not only was it a noticeable drop, it was the largest single-week decrease in a decade.

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Sudden Drop

In HousingWire’s report, which references data released by Freddie Mac, the 4.06% average interest rate (for 30-year fixed mortgages) is described as not only the biggest one-week drop in a decade but also the lowest rate we have seen since the beginning of 2018. It is a stark contrast from the projected 5+% rates many expected to see by this point in 2019. The change in course comes after the Federal Reserve announced it would not be increasing the federal funds rate. That decision came from “global economic and financial developments and muted inflation pressures.”

What it Means

In the Federal Reserve report, the deciding committee referenced slow economic growth in the first quarter of 2019. That report seems to have triggered a domino effect that has resulted in a substantial drop in the interest rate. With a continued increase in job creation, we will see continued improvement in the demand for housing. This demand, paired with this sudden improvement in interest rates, means more buying power.

How Low Can They Go?

Given the unexpected nature of this news, making future predictions seems premature at this point. However, given that this drop came on the heels of the Federal Reserve announcement, we can logically assume we are unlikely to see big continued drops. But how quickly the rate begins to climb remains to be seen. Home sales, which had slackened at the end of 2018, are beginning to recover. This encouraging boost brought on by the dip in the interest rate will likely have a positive impact on the mortgage industry as a whole.

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