Wednesday's selloff — the Dow took its biggest dive in eight months — took place after Freddie Mac polled lenders for this week's survey. The government-backed mortgage-backer aggregates rates weekly from 125 lenders from across the country to come up with national average mortgage rates.
"This week's survey closed prior to Wednesday's flight to quality," Sean Becketti, Freddie Mac chief economist, said in a statement. "The delayed impact of the associated decline in Treasury yields may push mortgage rates lower in next week's survey."
Political uncertainty is causing anxious investors, who are pulling back from stocks and moving into bonds. The yield on the 10-year Treasury has gone down 20 basis points in just over a week. Because mortgage rates tend to follow the same path as long-term bonds, it is likely that rates will continue to fall in the coming week.
Bankrate.com, which puts out a weekly mortgage rate trend index, found that more than half of the experts it surveyed say rates will go down. David Kuiper, vice president of Northpointe Bank in Holland, Michigan, is one who predicts home loan rates will head lower.
"Recent political turmoil and some not-so-great economic data have the stock market a bit jittery," Kuiper said. "This benefits the bond market (where mortgage interest rates are priced), as investors look for certainty and to avoid volatility."
Meanwhile, mortgage applications dwindled last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — decreased 4.1 percent. The refinance index dropped 6 percent, while the purchase index tumbled 3 percent to its highest level since October 2015.
The refinance share of mortgage activity accounted for 41.1 percent of all applications, its lowest level since September 2008.
"Mortgage application volume dipped as interest rates rose through the course of last week," said Mike Fratantoni, MBA's chief economist. "Purchase volume is running more than 9 percent above last year's pace, with conventional purchase application volume up more than 12 percent. The faster growth for conventional loans, which tend to be larger, led to another record high for the average purchase loan size at $322 thousand. The relative weakness in government application volume suggests that many potential first-time buyers remain on the sidelines due to the lack of entry-level homes on the market."