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Tuesday, May 12
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Mortgage Rates Today, Thursday, May 7: A Substantial Drop

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If you’re following mortgage rates daily, you may recall that yesterday I said rates were probably about to drop — and here’s that drop. Mortgage rates are significantly lower today as the prospect of an end to the Iran war feels within reach. Iran is expected to respond to the U.S.’s proposed plan today.

If that goes well, mortgage rates could head even lower. If an agreement isn’t reached, what rates do next will depend on how both sides react.

The average interest rate on a 30-year, fixed-rate mortgage fell to 6.15% APR, according to rates provided to BW by Zillow. This is 23 basis points lower than yesterday and 12 basis points lower than a week ago. (See our chart below for more specifics.) A basis point is one one-hundredth of a percentage point.

Also in the good news department, the U.S. labor market has been making positive headlines. Keep reading below the chart to learn how it all fits together.

Average mortgage rates, last 30 days

📉 When will mortgage rates drop?

Mortgage rates are constantly changing, since a major part of how rates are set depends on reactions to new inflation reports, job numbers, Fed meetings, global news … you name it. For example, even tiny changes in the bond market can shift mortgage pricing.

Here’s what’s motivating today’s mortgage rates.

The Iran war has been a primary driver for mortgage rates as investors react to geopolitical uncertainty. From day one of the war, there have been concerns about rising fuel prices due to Iran’s strategic importance both as an oil producer and geographically, bordering the critical Strait of Hormuz. The global oil supply is getting throttled, raising energy prices and contributing to inflation.

While the stock market’s been doing great, those inflation fears have been shaking up the bond market. Bonds offer investors a set return known as the yield. Less demand for bonds pushes their prices down, which pushes up bonds’ yields — relative to the bond’s price, that preset yield is now higher.

Here’s where it’ll hopefully start to make sense. Mortgage rates are benchmarked to one specific bond, the 10-year Treasury note. The yield on the 10Y T rose sharply throughout March and only eased up a bit in April, and we’ve likewise seen the average 30-year fixed rate mortgage APR remain firmly above 6%.

Lately, markets have been showing some fatigue when it comes to reacting to news coming out of the Middle East. Early on in the conflict, it felt like every update was a market mover. Now, it takes Big News (yes, with caps) to shake things up. That’s brought us somewhat more stable mortgage rates, even if they’re higher than one might like.

The U.S. putting forth a concrete proposal for ending the war certainly counts as Big News, and markets have reacted favorably. But we aren’t out of the woods yet. Iran’s still trying to assert its right to control the Strait of Hormuz, and President Trump has made clear that military strikes remain an option should an agreement fail to be reached.

Influences on the home front

There’s also plenty going on at home that’s got the potential to move mortgage rates.

At its meeting last week, the Federal Reserve kept its benchmark interest rate the same, marking the third consecutive meeting with no change. The Fed doesn’t set mortgage rates, but its level of influence over U.S. markets means that mortgage rates’ moves often anticipate the Fed’s actions.

The Fed controls a key short-term borrowing rate called the federal funds rate, and raising or lowering that rate is one of the central bankers’ main tools for influencing the U.S. economy. The Federal Reserve has a two-pronged mandate, promoting maximum employment (a job market where if you want a job, you can get one) and price stability (keeping inflation under control). Lately, those two goals have competed for the Fed’s attention, since neither’s been going great.

Inflation was already accelerating before the Iran war, and last week new data added to that pressure. March’s Personal Consumption Expenditures Index, the Fed’s preferred gauge, showed core inflation (which strips out volatile food and fuel prices) at 3.2%. That’s the highest that’s been since November 2023, underscoring concerns that war-driven increases in energy costs are pushing up prices across the board.

This week, it’s all about employment, and so far the data is… not too bad. Tuesday saw the release of March’s Job Openings and Labor Turnover Survey (a.k.a. JOLTS). JOLTS provides insight into trends in the labor force, with monthly info on how many jobs employers have open, how many Americans are quitting their jobs and how many layoffs occurred.

March actually looked decent, mainly because hires unexpectedly surged. On the other hand though, job openings were flat as were firings and quits. (People voluntarily leaving their jobs is a good sign, since it implies folks are confident about finding other work.)

Yesterday, payroll administrator ADP released data on private-sector employment that reinforced this could-be-worse picture with a peek at April. ADP found private employers added a modest number of jobs last month, which still beat markets’ expectations.

Tomorrow, we’ll get more government data as the Bureau of Labor Statistics releases the April Employment Situation Summary, better known as the jobs report. That’s what gives us the official unemployment rate.

A gloomy employment report has the potential to counterbalance the JOLTS data from March and the less comprehensive ADP report. The Federal Reserve typically responds to robust inflation by increasing interest rates, but evidence of a weakening labor market could prompt the Fed to consider rate cuts instead. While lower interest rates may seem appealing, they could bring significant drawbacks, as a sluggish job market often indicates a fragile economy. There is also the possibility that the Fed may prioritize combating inflation over supporting employment, leading to higher rates despite lackluster job numbers.

Refinancing could be a viable option if current rates are at least 0.5 to 0.75 percentage points lower than your existing rate, and if you plan to remain in your home long enough to recoup closing costs. Given the current rate environment, contemplating a refinance makes sense if your current rate is around 6.65% or higher.

When considering refinancing, it’s essential to clarify your objectives. Whether you aim to reduce your monthly payments, shorten your loan term, or leverage your home equity for cash, your specific goals will influence the refinancing strategy that best suits your needs. For instance, you might be willing to accept a higher rate for a cash-out refinance compared to a rate-and-term refinance, as long as the overall costs are lower than obtaining a HELOC or home equity loan on top of your original mortgage.

If you are seeking a lower rate, BW’s refinance calculator can help you estimate potential savings and determine the breakeven point for refinancing costs. statement: “The project must be completed by Friday.”

The project needs to be finished by the end of the week.

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