Worries about a U.S. recession gripped global financial markets on Monday. As of 10:30 a.m. EST, the Dow Jones Index fell 1,000 points, the Nasdaq Index fell as much as 6%, and the Japanese stock market suffered its largest decline since 1987, with the Nikkei 225 stock index falling 12.4%.
The turmoil should be a boon for the U.S. mortgage market, which has already seen sharp interest rate declines over the past week after a Federal Reserve meeting signaled an imminent cut in benchmark interest rates and a jobs report that was much weaker than expected.
“Bond yields fell sharply, then rose sharply; markets were crazy on Monday, with the 10-year yield only down a few basis points so far. house line lead analyst Logan Mohtashami said at 10:32 a.m. ET. “Mortgage pricing should be lower today, but 10-year yields at the close today are key as short-dated bonds have become severely overbought.”
Several loan officers and mortgage executives told Housingwire that their offers on Monday were even lower, although they still had to secure loans that were locked in at higher prices.
As of 11:08 a.m. ET, the 10-year Treasury yield hit 3.76%, the lowest level since June 2023, while the two-year Treasury yield rose to 3.88%, typically a sign of recession.
analyst Keefe Brouillette and Woods KBW said on Monday that weak employment data stoked concerns about credit and pushed interest rates higher. Mortgage spreads tighten at the same time, Fannie Mae The current coupon is 5.05%.
“If long-term rates remain stable, this suggests that the 30-year Freddie Mac fixed-rate mortgage should fall to about 6.3% next week from 6.73% last Thursday. The market has also significantly increased its expectations for Fed interest rates, which are expected to be lower by the end of the year Interest rates will be cut by approximately 4.6 25 basis points, with a high possibility of a 50 basis point rate cut in September.
“Fed funds futures now imply that the fed funds rate may be lower by 200 basis points by July 2025. This backdrop should broadly benefit the mortgage sector as (likely) improved purchasing activity should benefit originators/equities Insurers. … We also reiterate our view on mortgage insurers (ESNT highlighted here) as we expect credit to remain strong unless house prices fall significantly (which we do not expect to happen).
analyst Bank of America The market believes that the risk of recession in the United States is rising, and it is expected that interest rates will be cut by more than 100 basis points before the end of the year.
“The upcoming data has raised concerns that the U.S. economy is already in trouble,” they said. “Financial markets are currently expecting more than 100 basis points of interest rate cuts before the end of the year, with a high possibility of a 50 basis point rate cut in September. The market has even begun to discuss Whether the Fed will need to cut interest rates during the meeting is now a certainty, but we don’t think the economy will need a large, recession-sized rate cut.
Loan originators and mortgage executives told HousingWire on Friday that they are locking borrowers in the high 5% range for government loans and the mid-6% range for conventional mortgages.
Mortgage rates fell sharply last week, with most lenders increasing pricing by 20 to 60 basis points, causing a surge in rate locks, originators said.
“For example, I locked in a loan today and the borrower would lose 1.213 points on Monday compared to 0.375 points today. The loan amount was exactly $610,000 and the interest cost went from $7,400 to $3,200 today. American Pacific Mortgage Corporation. “With the average mortgage loan size in the U.S. being $405,000, an additional 80 basis points savings could equate to $150 to $250 per month, depending on the overall situation. This can mean a lot to borrowers.
Hoff said the borrowers best qualified to take advantage of these rates are those who purchased or received a cash-out refinance within the past 12 to 18 months. Additionally, some borrowers are now considering purchasing or have been prequalified in the last year.
“If DTI is a key factor in pre-approval, they can enjoy lower payments and even qualify for a higher purchase price,” she said.
Flavia Fran Nunez contributed to this report.
