Mortgage rates have dipped below 6% for the first time in years, following President Trump’s directive to buy $200 billion in mortgage bonds as part of efforts to tackle the housing crisis.
As of Monday, the average interest rate on a 30-year fixed mortgage was reported at 5.87%, a drop from 5.99% on Friday, marking the first time rates fell below 6% since February 2023. This change represents a decline of more than 1% in the average mortgage rate over the past year.
The 15-year fixed mortgage rate also decreased, coming in at 5.25% on the same day.
Borrowers with strong credit may find interest rates below 6% by shopping around among various lenders, and in some instances, even lower rates might be available.
It’s interesting to note that mortgage rates usually decrease quite gradually, typically only a tiny fraction each day. However, a drastic drop occurred last week after Trump’s announcement about purchasing the bonds.
He stated, “I am directing members of Congress to purchase $200 billion in mortgage bonds,” in a post on Truth Social. “This lowers mortgage rates, lowers monthly payments, and makes home ownership more affordable.”
Later, Federal Housing Finance Agency Commissioner Bill Pulte mentioned on X that Fannie Mae and Freddie Mac would be the entities executing these purchases, revealing they had already acquired $3 billion worth of bonds.
Over recent months, these government-sponsored entities have bought tens of billions in mortgage bonds and currently hold $230 billion. The proposed additional purchases could nearly double their holdings.
These actions provide lenders with more liquidity for homebuyers, which could lead to lower interest rates for mortgages.
UBS analysts suggested that these bond purchases may reduce 30-year fixed mortgage rates by upwards of 20%.
Still, it’s worth mentioning that the average interest rate on existing mortgage balances in the U.S. is around 4.4%, which is significantly lower than new mortgage rates. This discrepancy might motivate homeowners to retain their properties instead of selling.
Analysts at JPMorgan Chase & Co. noted that Trump’s bond purchases represent roughly 1.4% of the $14.5 trillion mortgage market.
“Similar to our view of President Trump’s post regarding banning institutional investors from purchasing homes, we do not believe this initiative will have a significant impact on the housing market,” they explained.
This remark echoes Trump’s recent announcement about curbing large investors from buying and renting out single-family homes. Though specifics about his plan were vague, it marks a new approach aimed at making homeownership more affordable.
During the past decade, large-scale investors and private equity firms have acquired hundreds of thousands of single-family homes.
The potential ramifications of Trump’s policies are open to debate. According to John Barnes Research and Consulting, firms owning 100 or more single-family homes control just around 2% of the nation’s single-family housing stock.
