Mortgage rates fell again this week, after plunging almost half a percentage point last week.
The 30-year fixed-rate mortgage averaged 6.58% in the week ended Nov. 23, down from 6.61[ads1]% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.10%.
Mortgage rates have risen through most of 2022, spurred by the Federal Reserve’s unprecedented campaign to raise interest rates to curb rising inflation. But last week prices fell amid reports indicating inflation may have finally peaked.
“This volatility makes it difficult for potential homebuyers to know when to enter the market, and it’s reflected in the latest data showing that existing home sales are slowing across all price points,” said Sam Khater, Freddie Mac’s chief economist.
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit. But many buyers who put down less money up front or have less than perfect credit will pay more than the average price.
The average weekly rates, usually released by Freddie Mac on Thursday, are released a day early because of the Thanksgiving holiday.
Mortgage rates tend to follow the yield on 10-year US Treasuries. When investors see or expect interest rate increases, they make moves that generate higher yields and mortgage rates.
The 10-year Treasury has been hovering in a lower range of 3.7% to 3.85% since a pair of inflation reports indicating prices rose at a slower-than-expected pace in October were released nearly two weeks ago. That has led to a major reset of investors’ expectations for future rate hikes, said Danielle Hale, Realtor.com’s chief economist. Before that, the 10-year Treasury had risen above 4.2%.
However, the market may be a little too quick to celebrate the improvement in inflation, she said.
At the Fed’s November meeting, Chairman Jerome Powell pointed to the need for ongoing rate hikes to curb inflation.
“This could mean that mortgage rates could rise again, and that risk increases if next month’s inflation reading comes in on the higher side,” Hale said.
Although it is difficult to time the market to get a low mortgage rate, many potential home buyers see a window of opportunity.
“After generally higher mortgage rates through 2022, the recent swing in buyer favor is welcome and could save the buyer of a median-priced home more than $100 per month over what they would have paid when rates were above 7% for just two weeks ago, Hale said.
As a result of the fall in mortgage rates, both purchase and refinance applications picked up somewhat last week. But refinancing activity remains more than 80% below last year’s pace when interest rates were around 3%, according to the Mortgage Bankers Association’s weekly report.
But with week-to-week swings in mortgage rates averaging nearly three times higher than in a typical year and home prices still historically high, many potential buyers have pulled back, Hale said.
“A long-term housing shortage is keeping home prices high, even as the number of homes on the market for sale has increased, and buyers and sellers may find it more challenging to match expectations with price,” she said.
In a separate report released Wednesday, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau reported that sales of new homes rose in October, rising 7.5% from September but down 5.8% from a year ago.
While that was higher than forecast and bucked a trend of recent falling sales, it’s still less than a year ago. Home construction has been at a historic low for a decade, and builders have pulled back as the housing market shows signs of slowing.
“New home sales are beating expectations, but a reversal of the overall downward trend is doubtful for now given high mortgage rates and builder pessimism,” said Robert Frick, corporate economist at Navy Federal Credit Union.
Despite a general trend of declining sales, new home prices remain at record highs.
The median price for a newly built home was $493,000, up 15% from a year ago – the highest price ever.