Last week, we surmised that if the yield on the 10-year U.S. Treasury note dropped to 2% or lower, we'd see the 30-year fixed-rate mortgage quoted regularly below 4%. The yield on the 10-year note dropped 15-basis points over the past week and is below 2%.

Mortgage-backed securities take their cue from the 10-year note. Therefore, mortgage rates (longer-term rates, specifically) take their cue from the 10-year note. Lenders today are regularly quoting the 30-year loan on top-tier scenarios below 3.9%.

The drop in longer-term mortgage rates has lead to a surge in refinances. The latest survey from the Mortgage Bankers Association shows refinances up 19% week over week. That's the good news. The bad news is that the same survey shows purchase applications down 2% week over week.  The downtrend in purchase applications is another reason we're not expecting an immediate upturn in home sales. 

The stock market is key. It's also a threat. We could easily see a spillover into housing: Both sales and lending activity could start trending lower if stock prices don't start trending higher.

 Information provided by Jessica Regan.

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