Mortgage rates reached a 4-month low this week.
The average rate on a 30-year fixed-rate mortgage is now at 6.15%, decreasing by 0.18 percentage points over the past week. The last time the 30-year rate was this low was mid-September. The rate on a 15-year fixed-rate loan moved lower as well, averaging 5.28%, a 0.24 percentage point drop.
“As inflation continues to moderate, mortgage rates declined again this week,” said Sam Khater, Freddie Mac’s chief economist, in a statement.
With rates at their lowest level since late fall, both homebuyer demand and homebuilder sentiment are increasing, noted Khater, adding that “declining rates are providing a much-needed boost to the housing market”.
After briefly averaging over 7% in early November, mortgage rates have dropped by almost one full percentage point. While the housing market continues to calm down from its frenetic pace, the recent decline in rates has prompted some buyers to come back into the market. The total number of mortgage applications increased by a seasonally adjusted 27.9% for the week ending January 13, according to the Mortgage Bankers Association.
“As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers,” said Mike Fratantoni, senior vice president and chief economist for the MBA, in a statement.
Mortgage rates drop after positive inflation news
Amid signs that the peak of inflation is passed, experts believe there is room for rates to continue the downward trend seen over the past two months.
On Wednesday, the Labor Department reported wholesale prices, which are reported in the Producer Price Index and measure the final-demand prices paid to producers for goods and services, decreased by 0.5 percentage points between November and December, more than analysts had anticipated and the largest monthly decline since April 2020.
The PPI differs from the Consumer Price Index, which measures prices paid by consumers.
Retail sales also fell more than anticipated during the last month of 2022, according to data also released on Wednesday from the Commerce Department. Sales fell by 1.1% from November, the largest month-over-month decrease since December 2021.
“While the unemployment remains low, economic data continues to point to falling inflation,” said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a statement. “Investors suspect a cooling economy will cause the Federal Reserve to pause, or even reverse, its program of interest rate hikes.”
If the Fed were to pause or reverse course, rates are likely to fall relatively quickly. However, there have been no indications from the central bank itself that a change in current policy is likely any time soon. In fact, recent comments from members of the Fed have doubled down on the need for more rate hikes this year.
Analysts are now waiting for the next Federal Open Market Committee at the end of the month for more clarity on the central bank’s mindset.
Last year, the Fed implemented a series of increases in the federal funds rate, or the short-term interest banks charge each other when borrowing money, in an effort to bring down rapidly rising inflation. The central bank hiked the rate a total of seven times in 2022, bringing the fed fund up from near zero to 4.5%.
The federal fund rate affects interest rates on all kinds of loans including mortgages by influencing the cost of borrowing — if the fed fund increases, so do interest rates in general.
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