Mortgage rates fell below 7% for the first time since August

Washington DC
CNN
—

This week mortgage rates fell below 7% for the first time since mid-August. Rates fell for a seventh consecutive week as the Federal Reserve paused its rate hikes as inflation improved.

With Central Bank Signal at its most recent meeting With rate cuts likely in 2024, mortgage rates are expected to continue to decline.

The 30-year fixed-rate mortgage rate fell to an average of 6.95% in the week ended December 14. 7.03% a week ago, according to data from Freddie Mac released Thursday. A year ago, the average 30-year fixed rate was 6.31%.

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 with excellent credit who put 20% down. Current buyer’s rate May be different.

“Potential homebuyers received welcome news this week as mortgage rates fell below 7% for the first time since August,” Freddie Mac Chief Economist Sam Cotter said in a statement.

“As inflation continues to decline, current expectations for the Federal Reserve Board to cut the federal funds target rate next year could see the housing market gradually ease in the new year,” Kathar said.

The average rate rose above 7% in mid-August to 7.79% at the end of October. The declining rates in recent weeks indicate that the peak mortgage rates of this cycle may have passed. This is welcome news for buyers who have faced the lowest affordability market since the 1980s.

According to the Mortgage Bankers Association, mortgage applications for the week ended Dec. 8 rose for the sixth straight week from the previous week.

Bob Brockschmidt, CEO of MBA, said the increase is a strong indication that borrower demand is increasing as a result of the recent decline in mortgage rates.

“Lower mortgage rates are a welcome addition to prospective first-time buyers who are still struggling to find affordable homes in their price range,” he said in a statement.

Homebuyers act opportunistically, jumping in rates and making offers when prices drop in the period between Thanksgiving and New Year’s, when the housing market typically crawls, said Lisa Sturtevant, chief economist for Pride MLS.

But even if rates ease into the new year, the market won’t heat up too fast because of stubbornly low inventory, he said.

“We often talk about how lower mortgage rates will bring more buyers into the market,” Sturtevant said in a statement. “But in this unusual market, with inventory locked in, it’s critical to see how falling rates affect prospective sellers’ decisions.”

According to mortgage data firm ICE Mortgage Technology, nearly two-thirds of current mortgage holders have interest rates of 4% or less, and more than 90% have interest rates of 6% or less. That means even if rates drop to the mid-6% range, it will be harder to encourage homeowners with very low mortgage rates to sell.

This reluctance will keep inventories low, Realtor.com economist Jiayi Xu said in a report, and float prices higher in the new year.

“The difference between today’s high market mortgage rates and the low rates that existing homeowners can enjoy on their current mortgages, typically referred to as Lock-in effect, is expected to play a role in maintaining low inventory levels,” Chu said. “As homebuyers compete for more limited inventory, prices are expected to rise, maintaining affordability as a key concern.”

The impact of the central bank’s pause and rate cut signal

Investors expected the central bank to keep its benchmark federal funds rate at its current rate at its December meeting this week. That expectation combined with falling 10-year Treasury yields drove mortgage rates lower.

Although the central bank does not directly set the interest rates borrowers pay on mortgages, its actions affect them. Mortgage rates track the yield on 10-year US Treasuries, which move based on expectations about the Fed’s actions, what the Fed will end up doing, and investors’ reactions. As Treasury yields rise, so do mortgage rates; When they fall, mortgage rates tend to follow.

“Although Increase in job growth and the unemployment rate fell in November, the overall trend indicates a slowdown in the labor market,” Chu said. “In addition, the Revised Consumer Price Index It says the Federal Reserve’s historic monetary tightening measures are effectively controlling inflation.

The central bank also released its summary of economic forecasts, which revealed a lower median expectation for the central bank’s funds rate by the end of next year, now down to 4.6% from 5.1% in its September forecast.

In a press conference on Wednesday, Fed Chairman Jerome Powell said that “no one has declared victory” over inflation, but he acknowledged that officials, at least, are already discussing rate cuts in the new year.