Mortgage rates fall for the fourth week in a row
Mortgage rates fell slightly this week as a minor rate hike by the Federal Reserve signaled a promising improvement in inflation.
The 30-year fixed-rate mortgage averaged 6.09% in the week ending February 2, below from 6.13% the previous week, according to Freddie Mac data released Thursday. A year ago, the 30-year fixed rate was 3.55%.
After rising for most of 2022, buoyed by the Fed’s sharp rate hikes to tame runaway inflation, mortgage rates have been on a downward trend since November, along with data that continues to show inflation could have peaked.
Mortgage rates haven’t been this low since September and are now almost a point below last year’s high of 7.08%, last hit in early November.
“This one percentage point reduction in rates can allow up to three million more mortgage-ready consumers to qualify and repay a loan of $400,000, which is the median home price,” said Sam Khater, chief economist at Freddie Mac. .
The Fed approved a quarter point interest rate hike on Wednesday, the smallest since March. The move to slow the rate of increases sends a clear signal that the central bank is seeing progress in its battle against inflation.
Although the Federal Reserve does not directly set the interest rates borrowers pay for mortgages, they are influenced by its actions. Mortgage rates tend to follow the yield on 10-year US Treasuries, which move based on a combination of anticipation of Fed actions, what the Fed actually does, and market reactions. investors. When Treasury yields go up, so do mortgage rates; when they drop, mortgage rates tend to follow.
As inflationary pressures ease, mortgage originators have followed suit, lowering the cost of borrowing, said George Ratiu, manager of economic research at Realtor.com.
The effect of the Fed’s actions is to keep a floor on short-term mortgage rates, he said, adding that he expects rates to stay around 6% for the next few weeks.
“The Federal Reserve controls short-term rates, but long-term rates, including 30-year mortgage rates, are a function of market expectations for where the economy is going,” said Mike Fratantoni, senior vice president and economist head of Mortgage Bankers Association. “And investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time.”
The MBA forecasts a modest drop in mortgage rates through 2023, ending closer to 5%.
Other economic data plays a role in how mortgage rates move, including reports on employment and inflation.
“The latest indicators point to a still resilient economy,” Ratiu said. The job market remains tight despite the Fed’s efforts to cool the economy: Wednesday’s Job Vacancy and Job Turnover Survey, or JOLTS, showed there were 11 million job offers in December, the highest since July.
Housing economists and those in the mortgage market are watching the next inflation report, due on February 14, to see if the pace of price increases continues to slow.
Even with lower rates in recent weeks, mortgage applications fell 9% last week from the previous week, according to MBA.
“Overall application activity eased last week, despite lower rates, which is an indication of the still volatile time of year for real estate activity,” said Joel Kan, vice president and deputy chief economist at MBA. “Buying activity is expected to pick up as the spring home buying season begins, buoyed by lower rates and moderating home price growth. Both trends will help some buyers regain purchasing power.”
For real estate markets, lower rates have eased the financial burden on homebuyers, Ratiu said.
Housing market data for January showed a rising number of homes for sale, properties staying longer on the market and prices falling 11% from their 2022 peak, according to Realtor.com.
“For today’s mid-priced home buyer, the down payment amount is lower than it would have been last summer,” Ratiu said. “While this is positive news, affordability remains a top challenge, especially for first-time buyers.”
The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers with a 20% down payment and excellent credit. Many buyers who put down less money up front or have less than ideal credit will pay more than the average rate.