Editor’s note: Freddie Mac, which has tracked weekly average mortgage rates since 1971 and has periodically made changes to its primary mortgage market survey, changed the source of its data effective November 17, 2022. Instead of surveying lenders, weekly results will be based on applications received from lenders that are submitted to Freddie Mac. Learn more about Freddie Mac’s Change here.
Mortgage rates fell sharply last week following a series of economic reports indicating that inflation may finally come down.
The 30-year fixed-rate mortgage averaged 6.61% in the week ending Nov. 17, down from 7.08% the week before, according to Freddie Mac, the biggest weekly drop since 1981. It a year ago, the 30-year fixed rate was 3.10%.
Mortgage rates have risen for most of 2022, boosted by the Federal Reserve’s unprecedented interest rate hike campaign to rein in soaring inflation.
Last week, two key inflation reports – the consumer price index and the producer price index – showed prices rose at a slower pace than expected in October, suggesting that the inflation is moving in the right direction and may even have peaked.
“While lower mortgage rates are good news, there is still a long way to go for the housing market,” said Sam Khater, chief economist at Freddie Mac. “Inflation remains high, the Federal Reserve is expected to keep interest rates high, and consumers will continue to feel the impact.”
The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who have a 20% down payment and have excellent credit. But many buyers who put less money up front or have less than perfect credit will pay more than the average rate.
Investors saw last week’s weaker-than-expected CPI data as an indication that the Federal Reserve could make smaller interest rate hikes in the coming months, said George Ratiu, chief financial officer. economic research at Realtor.com.
Although the Fed does not directly set the interest rates that borrowers pay on mortgages, its actions influence them. Mortgage rates tend to follow the yield of 10-year US Treasury bills. When investors see or anticipate rate hikes, they take action that drives up yields and mortgage rates.
“The 10-year Treasury note rose from 4.15% last Wednesday to 3.68%, as financial markets appeared to applaud slowing inflation as a sign that monetary tightening by the Federal Reserve is producing l intended effect,” Ratiu said.
Even though the inflation data is moving in the right direction, the Fed has said it has no plans to back off on raising rates until inflation nears the desired 2% target.
Still, lower mortgage rates over the past week have given buyers relief, Ratiu said.
A buyer buying the home at the median price with a 20% down payment at last week’s average rate of 7.08% faced a monthly payment of around $2,280, according to Realtor.com. At a rate of 6.61%, the same buyer would see their payment drop to $2,174. While the $100 per month savings may not seem like much, over the term of a 30-year loan, the buyer would save nearly $48,000 in interest.
These savings have prompted some buyers to jump in and lock in a lower mortgage rate.
Mortgage applications increased for the first time in seven weeks, according to the Mortgage Bankers Association, as purchase and refinance applications increased.
“Signs of slowing inflation have pushed mortgage rates below 7% for the first time since mid-October, but with rates still relatively high and affordability reduced as a result, the average loan size is now to its lowest level in nearly two years,” Bob Broeksmit said. , President and CEO of the MBA.
Buying a home remains a challenge for many buyers. Mortgage rates are expected to remain volatile for the rest of the year. And prices remain high in many areas, especially where there is a very limited inventory of homes available for sale.
Meanwhile, inflation and rising interest rates mean that many potential buyers also face tight budgets.
“For consumers, rapidly rising prices have added significant financial pressures, especially as inflation erodes wage gains,” Ratiu said. “The Fed’s rate hikes are directly tied to higher interest rates for credit cards and auto loans, which, along with higher mortgage debt, add additional burdens to household finances.”
According to Realtor.com, more than 20% of listings have seen their prices drop as sellers adjust their strategy to meet buyers in a changing financial landscape.
“On the one hand, sellers have accepted the fact that homes priced in line with the housing market we knew when rates were at 3% leave very few buyers able to manage mortgage payments with the rates at ‘today,” Ratiu said. “On the other hand, buyers may be hesitant to move forward with transactions if they find the erratic nature of current mortgage rates disconcerting.”
Mortgage rate volatility is not expected to subside in the near future, which will cause uncertainty for both buyers and sellers.
“With inflation still north of 7% and the Fed committed to continue raising the funds rate over the next few months, the mortgage market is not out of the woods,” Ratiu said. “We could still see rates rebound above 7% before the end of the year.”
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