Mortgage rates fell again this week after falling almost half a percentage point last week.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.58% in the week ended November 23, compared to 6.61% the week before. A year ago, the 30-year fixed rate was 3.10%.
Mortgage rates have risen for most of 2022, spurred by the Federal Reserve’s unprecedented campaign to raise interest rates to tame rising inflation. But last week, interest rates fell amid reports suggesting inflation may have finally peaked.
“This volatility is making it difficult for prospective homebuyers to know when to enter the market, and that’s reflected in the latest data showing existing home sales are slowing at all price points,” said Sam Khater, chief economist at Freddie Mac.
The average mortgage rate is based on mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who are paying back 20% and have excellent credit ratings. But many buyers who invest less upfront money or have less than perfect credit scores pay more than the average rate.
Average weekly rates, normally released by Freddie Mac on Thursdays, are released a day earlier due to the Thanksgiving holiday.
Mortgage interest rates are generally based on the yield on 10-year US government bonds. When investors see or anticipate rate hikes, they take actions that push yields higher and mortgage rates higher.
10-year government bonds have been trading in a lower range of 3.7% to 3.85% since two inflation reports were released almost two weeks ago that suggested prices rose at a slower-than-expected rate in October. That has caused a major setback in investors’ expectations for future rate hikes, said Danielle Hale, Realtor.com’s chief economist. Previously, the 10-year Treasury was up over 4.2%.
However, the market might be a little too quick to celebrate improving inflation, she said.
At the Fed’s November meeting, Chair Jerome Powell pointed to the need for continued rate hikes to tame inflation.
“This could mean that mortgage rates could start to rise again, and that risk increases if inflation data is on the higher side for next month,” Hale said.
While it’s difficult to time the market to get a low mortgage rate, many prospective homebuyers see an opportunity.
“Following generally higher mortgage rates throughout 2022, the recent turnaround in buyer favor is welcome and could save the buyer of an average-priced home more than $100 a month compared to what they would have paid if interest rates were over 7%. just two weeks ago,” Hale said.
Both purchase and refinance requests have recovered slightly over the past week as a result of the drop in mortgage rates. However, according to the weekly report from the Mortgage Bankers Association, refinancing activity is still more than 80% below the pace seen last year, when interest rates were hovering around 3%.
With mortgage rates fluctuating week-to-week, averaging nearly three times what they would be in a typical year, and home prices still at historically high levels, many potential buyers have pulled away, Hale said.
“A long-term housing shortage is keeping house prices high, even as the number of homes for sale in the market has increased, and buyers and sellers may find it more difficult to align price expectations,” she said.
In a separate report released on Wednesday, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau said new home sales jumped in October, up 7.5% from September but up 5% from a year earlier .8% have fallen.
While that was higher than forecast and bucking a trend of recent declining sales, it’s still under a year. Housing construction has been at historically low levels for a decade and builders are pulling back as the housing market shows signs of slowing.
“New home sales exceeded expectations, but a reversal of the broader downtrend is doubtful for now given high mortgage rates and pessimism from homebuilders,” said Robert Frick, business economist at Navy Federal Credit Union.
Despite a general trend of falling sales, new home prices remain at record highs.
The median price for a new home was $493,000, up 15% from a year ago – the highest price on record.