Mortgage Rates Are Finally Falling. Here’s Why They Can Move Fast.

Group 1 - The bond market, particularly long-term bond yields, is a critical indicator for mortgage rates, influenced by expectations of Federal Reserve interest rate cuts and recession risks [1][3] - The 30-year fixed mortgage rates recently reached their lowest level since 2024, recorded at 6.29% [2] - Following the release of a disappointing government jobs report, 10-year Treasury yields decreased by 0.09 percentage points, leading to a 0.16 point drop in the 30-year fixed-rate tracker [3] Group 2 - The rapid changes in mortgage rates are linked to the dynamics of mortgage-backed securities, which pool various mortgage loans [4] - Standardized 30-year fixed-rate mortgages, often backed by Fannie Mae or Freddie Mac, are typically sold into the mortgage-bond market, categorized in half-point coupon levels [5] - As future interest rate expectations decline, bond investors are inclined to pay more for lower-coupon bonds, resulting in better pricing for mortgage originators [6] Group 3 - Higher-rate mortgages are more likely to be refinanced early, posing a reinvestment risk for bondholders who prefer bonds with lower payouts but longer durations [7]