It took a lot longer than expected, but we finally have a sub-6% mortgage rate!
This according to the latest reading from Mortgage News Daily, which tracks mortgage rates each day.
The widely-cited index hit 5.99% on the dot today as bond yields fell and the stock market crashed.
Call it a flight to safety in bonds, enough to give mortgage rates that little push they needed to finally get into the 5s.
The big question now though is will they stay there? Or simply bounce back above 6%? And how will prospective home buyers react?
5% Mortgage Rates Arrive Just in Time for the Spring Home Buying Season
While mortgage rates briefly hit 5.99% back in early January when that $200 billion MBS buying program was announced, it was short-lived.
In fact, by MND’s own measure, a midday price change mean the 30-year fixed only spent a portion of the day sub-6%.
So it was not at all sustained, or long enough for the national media to run headlines celebrating a 5% mortgage rate.
Perhaps this time will be different, as we’ve spent more time testing these new lower levels and now it could stick.
Especially since the driver this time appears to be a good old-fashioned stock market selloff and accompanying flight to safety in bonds.
Simply put, when there’s lot of uncertainty, stocks drop and investors seek the comfort of bonds.
That sudden rush of demand increases the bond’s price but pushes their yield, or interest rate, down.
The effect is a lower 30-year fixed mortgage rate, which moves in lockstep with 10-year bond yields because both have a similar maturity of a decade.
Remember, most 30-year mortgages are prepaid well ahead of time due to various reasons, whether it’s a home sale, a mortgage refinance, or extra payments.
I’ve said for a while that mortgage rates being close to the 5s while the stock market was at/near all-time highs meant a simple flight to safety could easily get us lower.
And that appears to be the case today. Investors are growing nervous of the high valuations while also hearing about major displacement due to emerging AI technology.
If a bigger move into bonds takes place as a result, mortgage rates could make an even deeper move into the 5s.
Can Mortgage Rates Actually Stay in the 5s This Time?
The last time the 30-year fixed was actually in the 5% range for more than a fleeting moment was the summer of 2022.
But at that time, mortgage rates were ascending rapidly. So a 5% mortgage rate wasn’t seen as a gift, but rather a curse as rates had started the year in the 3s!
The big question now is can we stay here, or dare I say improve from current levels?
The biggest driver for improved affordability is mortgage rates. Sure, you can argue home prices are too high, but rates are an easier lever to pull.
For every 1% drop in mortgage rate, you’d need about an 11% drop in home price to achieve the same improvement in affordability.
Ultimately, it’s more likely for rates to fall by that amount than for home prices.
Although, it’s totally reasonable for both mortgage rates and home prices to fall in tandem.
Many don’t understand this, but if mortgage rates are falling due to economic jitters, home prices could do the same.
If the outlook is cloudy or even gloomy, both can fall at the same time, thereby improving housing affordability immensely.
Of course, we don’t want to root for an economic collapse just to save a few bucks on the mortgage.
Continued easing in rates without economic calamity would be the preferred route.
Let’s just remember though that they’re literally one basis point into the 5s and we’ve seen this movie before.
The key will be staying in the 5% range for longer than a day or a week or even a month.
That will help us determine how important a mortgage rate that starts with a ‘5’ will be for this market.
Will Home Buyers React as Expected to 5% Mortgage Rates?
A question I’ve been asking myself lately is will 5% mortgage rates be meaningful to the housing market.
Will they get more buyers off the fence and home sellers too? Remember that a home seller might want/need a low-rate environment as well to list their home.
Why? Because they’re likely a buyer too. Most home sellers are home buyers. So they need the affordability picture to improve if they’re going to make a move.
It’s not just about buyers.
Another thing to keep in mind here is that much of this is psychological.
I’ve said it once and I’ll say it again. The difference in monthly payment on a $400,000 loan set at 5.875% versus 6% is only about $32 per month!
Mathematically, it’s not a lot and clearly not enough to sway a home purchase decision. At least I hope it isn’t.
That means it comes down to human psychology. Do home buyers and home sellers feel more comfortable in an environment where mortgage rates finally feel “cheap” again?
Read on: 2026 Mortgage Rate Predictions
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