As investors sought safety in the bond market as a potential conflict with Iran emerged this past week, mortgage rates dropped to their lowest level since October.
The 30-year fixed-rate mortgage averaged 3.64% during the week ending Jan. 9, down eight basis points from the previous week, Freddie Mac FMCC, -2.22% reported Thursday.
The rate on the 30-year mortgage is nearly a full percentage point lower than it was at this same time a year ago, when rates averaged 4.45%.
The 15-year fixed-rate mortgage dropped nine basis points to an average of 3.07%, according to Freddie Mac. The 5-year Treasury-indexed hybrid adjustable mortgage averaged 3.30%, falling a staggering 16 basis points from a week ago.
“Mortgage rates fell to the lowest level in 13 weeks, as investors sought the quality and safety of the U.S. Treasury fixed income markets,” said Sam Khater, Freddie Mac’s chief economist, said in the report. “The drop in mortgage rates, combined with the strong labor market, should propel a continued rise in homebuyer demand.”
Mortgage rates generally track the direction of the 10-year Treasury note TMUBMUSD10Y, +0.00% . The 10-year Treasury yield initially fell substantially in the wake of the news that the U.S. had killed Qassem Soleimani, the leader of the foreign wing of Iran’s Islamic Revolutionary Guard Corps, in an airstrike. Iran subsequently retaliated by firing missiles at bases in Iraq that house American soldiers.
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The 10-year Treasury yield’s decline was fueled by investors looking for safer assets in the wake of the growing tensions between the two countries. The higher demand for Treasuries sent bond prices higher, which causes their yields to decline. The 10-year Treasury yield has since improved, in part because of optimism for a trade deal between the U.S. and China.
Looking ahead, the rate environment could be volatile in the coming weeks and months, said Matthew Speakman, an economist with Zillow ZG, -0.31% . “Volatility may return in coming days, potentially as soon as Friday’s release of December’s all-important jobs figure,” he said. “Should December’s numbers come close to November’s — which greatly exceeded experts’ expectations — and tensions in the Middle East fail to escalate further, a return to upward-trending rates may be on the horizon.”
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