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Houses in Hercules, California, USA, on Wednesday, August 16, 2023.
Washington, D.C. CNN –
Mortgage rates fell this week by the most since November of last year. It’s the second week in a row that interest rates have fallen, after rising for seven straight weeks.
The 30-year fixed-rate mortgage fell to an average of 7.50% in the week ended Nov. 9, compared with 7.76% the week before, according to Freddie Mac data released Thursday.
A year ago, the average 30-year fixed rate reached 7.08%, its highest level in 2022. The following week, rates fell 47 basis points. This week saw a decline of 26 basis points compared to the previous week.
“As Treasury yields fall, the 30-year fixed-rate mortgage fell a quarter of a percent, the largest one-week decline since last November,” said Sam Khater, chief economist at Freddie Mac.
“Incoming data shows that household debt continues to rise, primarily due to mortgage, credit card and student loan balances,” he said. “Many consumers feel burdened by the high cost of living. So unless mortgage rates fall significantly, the real estate market will stagnate.”
The average mortgage rate is based on mortgage applications Freddie Mac receives from thousands of lenders across the country. Only borrowers who make a 20% down payment and have excellent credit are included in the survey. A current buyer’s price may vary.
As mortgage rates fell last week, all loan applications increased 2.5% compared to the week before, according to the Mortgage Bankers Association. The number of mortgage applications to purchase a home increased by 3%.
“Applications for purchase and refinance loans increased throughout the week but remained at low levels,” said Joel Kan, MBA vice president and deputy chief economist. “The purchase index is still more than 20% behind last year’s pace as many homebuyers wait until more inventory becomes available for sale.”
The Federal Reserve’s decision at last week’s policy meeting to keep interest rates at their current levels was good news for homebuyers struggling with extremely high mortgage rates, but the option of another Fed rate hike still looms the table.
“More economic indicators are needed to determine whether current policies are ‘restrictive enough’ to bring inflation back to levels [Fed’s] 2% target,” said Jiayi Xu, economist at Realtor.com.
While the Fed does not directly set the interest rates borrowers pay on mortgages, it influences them through its actions. Mortgage rates typically follow the 10-year U.S. Treasury yield, which moves based on a combination of expectations about the Fed’s actions, what the Fed will ultimately do, and investor reactions. When Treasury yields rise, mortgage rates also rise; When they fall, mortgage rates tend to follow.
Meanwhile, Xu said October’s jobs report, which revealed moderate job growth and lower wage pressures, could boost policymakers’ confidence that the economy will continue to ease without the need for further Fed rate hikes in the coming months. The Fed’s final interest rate meeting of the year is scheduled for December 12th and 13th.
“As the possibility of a rate hike remains, investors are likely to exercise caution in their positioning and expectations [mortgage] “Interest rates remain stable to slightly higher,” Xu said.
Homebuyers get a small rate cut as unaffordability reaches new heights.
According to Realtor.com, while the average price of a home in October was about the same as last year, mortgage rates, which have been above 7% since mid-August, led to a significant increase in the cost of financing a typical home purchase.
The monthly cost of buying a home has increased by over $166. That’s a 7.4% increase from last year and a new record for the annual increase in the cost of buying a home, Realtor.com has found.
But while mortgage rates remain relatively high, the difference between current rates and those a year ago has narrowed, said Lisa Sturtevant, chief economist at Bright Multiple Listing Service.
“In many ways, market conditions are similar to last November,” she said. “The difference is that consumers have adjusted their expectations for mortgage rates.”
“Many buyers are moving on and will react quickly when they see interest rates falling,” she said. “Other potential homebuyers will wait until the end of the year, hoping for lower interest rates and more inventory.”
While interest rates are expected to fall in 2024, she said, a return to pandemic levels is not expected.
“We are in a new era of mortgage rates where potential homebuyers can expect interest rates above 6%,” Sturtevant said.