Mortgage rates fall for the third week in a row as inflation fears ease

By Anna Bahney, CNN Business

Mortgage rates dipped again this week, marking the third straight week of falling rates.

The 30-year fixed-rate mortgage averaged 6.49% in the week ending December 1, down from 6.58% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.11%.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. But in the last couple of weeks, mortgage rates have tumbled following reports that indicated inflation may have finally reached its peak.

Fed Chairman Jerome Powell said on Wednesday the central bank could start pulling back on the pace of its aggressive rate hikes as soon as December.

“Mortgage rates continued to drop this week as optimism grows around the prospect that the Federal Reserve will slow its pace of rate hikes,” said Sam Khater, Freddie Mac’s chief economist.

But even with softening rates and easing prices, Khater said, economic uncertainty is tamping down homebuyer demand as we enter the last month of the year.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put down 20% and have excellent credit. But many buyers who put down less money upfront or have less-than-perfect credit will pay more than the average rate.

Watching inflation

Powell’s remarks on Wednesday were welcome news to investors.

But he added: “Despite some promising developments, we have a long way to go,” noting that the Fed has “not seen clear progress” on the decades-high inflation plaguing the economy.

“The Fed is indicating that the aggressive rate hikes this year have been enough to start slowing inflation,” said George Ratiu, Realtor.com’s manager of economic research.

Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

Investors are also watching the Fed’s favorite inflation measure, released today, which showed some cooling. Taken together with yesterday’s news from Powell, US Treasury yields fell, suggesting mortgage rates are likely to go in the same direction.

“The retreat in mortgage rates from the 7.0% territory brings a measure of relief to homebuyers who watched their budgets shrink dramatically over the past year,” said Ratiu.

An opening for homebuyers

After nearly a year of mortgage rates rising, the breather in rates during the past few weeks has been welcome news to homebuyers. They have responded positively to lower rates, with mortgage applications to buy a home ticking up last week, according to the Mortgage Bankers Association.

The 30-year fixed mortgage rate has fallen nearly 60 basis points over the past five weeks, according to Freddie Mac’s numbers, which has drawn some prospective buyers back to the market, said Bob Broeksmit, CMB, President and CEO of the Mortgage Bankers Association

“With signs of economic slowing both in the US and globally, mortgage rates will remain volatile but are likely to continue to trend downward,” he said, noting that MBA forecasts mortgage rates to finish the year below 7%.

This means today’s buyers may have relatively lower payments than those buying just a few weeks ago.

At today’s rate, the buyer of a median-price home is looking at a $2,150 monthly payment—before taxes and insurance—an improvement from just a few weeks ago when that figure was about $2,300, according to Realtor.com.

“For real estate markets, mortgage rates compounded the relentless increase in prices over the past two-and-a-half years, pushing many buyers to the sidelines,” said Ratiu. “The reprieve in the relentless surge is welcome news. However, financial pressures continue to make the path to homeownership an expensive one for many households.”

The outlook for 2023 calls for housing costs to remain elevated, according to a Realtor.com’s forecast.

“The silver lining is that the inventory of homes for sale continues ramping up, even with sellers taking a step back from the market this fall,” said Ratiu. “Buyers who are ready can expect more properties to choose from, and a better negotiating position.”

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