Mortgage rates log biggest drop in over a year amid falling bond yields

• Rates on the 30-year fixed mortgage dropped from 7.86% to 7.61% in the last week, the MBA said Wednesday.
• That marks the biggest weekly drop in over a year, and mortgage application volume jumped.

The rate on the most popular US home loan saw the biggest weekly decline in over a year last week, while mortgage demand spiked, according to the the latest data from the Mortgage Bankers Association.

The MBA said Wednesday the average interest rate on a 30-year fixed mortgage with loan balances of $726,000 or less moved from 7.86% to 7.61% last week. At the same time, total mortgage application volume climbed 2.5% compared to the prior week.

The dip in mortgage rates coincided with sinking bond yields, as investors piled back into US Treasurys after weeks of volatility that saw the benchmark 10-year bond yield jump past 5% for the first time since 2007.

"Last week's decrease in rates was driven by the U.S. Treasury's issuance update, the Fed striking a dovish tone in the November FOMC statement, and data indicating a slower job market," according to Joel Kan, the MBA's vice president and deputy chief economist.

Mortgage refinancing applications, meanwhile, increased 2% on the week, though they remained 7% lower than the same time in 2022. Mortgage rates, too, ultimately are not lower than November last year, which suggests homeowners and prospective buyers don't have any additional incentive to refinance or enter the market.

Still, mortgage rates are hovering around multi-decade highs, home prices remain elevated, and housing inventory is still lagging historical levels. And despite last week's favorable labor market report that showed conditions cooling off, economists and Wall Street forecasters don't expect the Federal Reserve to ease monetary policy anytime soon, leaving room for Treasurys and mortgage rates to remain elevated.