Mortgage Rates Drop Dramatically: Freddie Mac

Money; Getty Images
Money; Getty Images

Mortgage rates dropped dramatically below 7% this week.

The 30-year fixed rate mortgage is now averaging 6.61%, according to Freddie Mac’s weekly analysis. That’s a 0.47 percentage point decline compared to last week. The 30-year rate posted its largest week-over-week decline since July, when the rate decreased by 0.40 percentage points.

“Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked,” said Sam Khater, Freddie Mac’s chief economist in a statement. “While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”

The average rate for a 15-year fixed-rate mortgage also saw a big decline, dropping 0.40 percentage points to 5.98%.

Freddie Mac has made a number of changes to the way it collects data for its weekly mortgage rate survey. Beginning with the November 17 release, the average rate data will no longer be based on a weekly lender survey. Instead, it will be based on mortgage application information thousands of lenders submit to Freddie Mac when a borrower applies for a mortgage.

The weekly averages still reflect conventional, conforming loans (i.e. loans eligible for purchase by Freddie Mac) for borrowers with excellent credit who made a 20% down payment. However, the data no longer includes discounts for points/fees paid. In addition, Freddie Mac will no longer publish weekly average rates for adjustable-rate mortgages.

“This week we are launching enhancements to our Primary Mortgage Market Survey methodology that will increase its accuracy and reliability,” added Khater. “This new approach will incorporate more detailed data and monitor real-time mortgage rates more closely.”

Mortgage rates take a big step back

Mortgage rates moved lower on the heels of last week’s better-than-expected inflation report.

Last Thursday, the Bureau of Labor Statistics reported that consumer prices had increased by 7.7% year-over-year in October, lower than anticipated and the slowest pace of increase so far this year. As a result, yields on the 10-year Treasury note dropped sending mortgage rates lower as well.

This week’s lower rates provide a little bit of breathing room for potential homebuyers.

“The sharp decline was welcome news for first-time buyers waiting for a more affordable entry point as well as those eager to move and buy their next home,” said Matthew Speakman, chief economist at Zillow Home Loans, in a statement.

A 10-year Treasury note is considered a safe investment during times of economic uncertainty and can influence mortgage rates. When yields rise, mortgage rates also rise — typically averaging 1.8 percentage points higher than the 10-year yield.

Last week’s lower-than-anticipated inflation reading also sparked renewed hope that the Federal Reserve may ease up on its aggressive monetary policy, which could bring mortgage rates down further.

In a bid to bring inflation back under control, the central bank has implemented a series of increases in the federal funds rate, or the interest rate banks charge on short-term loans. So far this year, the Fed has implemented six rate increases, driving the fed fund rate from 0% in March to its current level of 4%. The last four of the six rate increases have been significant 0.75 percentage point hikes.

In a speech at the 59th Annual Economic Forecast Luncheon on Wednesday, Federal Reserve Governor Christopher J. Waller indicated there was a possibility of a smaller rate increase at the next Fed meeting in December.

“The data of the past two weeks have made me more comfortable considering stepping down to a 50-basis point hike,” Waller said.

However, he went on to caution that any slowdown in the pace of fed fund increases will be dependent on future data, including upcoming reports on jobs and personal consumption expenditures. He also said that, even though there are some indications of progress in the fight against inflation, it isn’t yet enough to warrant a complete stop to rate increases.

“I expect that getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year,” said Waller.

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