Mortgage rates fall for third straight week, bringing some homeseekers off the sidelines

Washington, DC (CNN) — Mortgage rates fell for the third straight week and applications to purchase a home increased by the most in five weeks, in a promising sign for a housing market that has stalled out as mortgage rates edged towards 8%.

The 30-year fixed-rate mortgage fell to an average of 7.44% in the week ending November 16, down from 7.5% the week before, according to data from Freddie Mac released Thursday.

A separate report showed that applications to purchase or refinance a home were up by 2.8% last week, the highest in five weeks, according to data from the Mortgage Bankers Association. Applications for a mortgage remain at historically low levels, however.

Mortgage rates have cooled in recent weeks as markets absorbed the latest economic indicators, including an improving inflation picture.

“For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding,” said Sam Khater, Freddie Mac’s chief economist. “The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the market.”

The average mortgage rate is based on applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. A current buyer’s rate may be different.

While the Federal Reserve does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.

Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually ends up doing and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

Inflation improves, bringing rates down

Consumer prices rose last month at the slowest pace in two years, according to the Consumer Price Index for October, released on Tuesday. In addition, the Producer Price Index saw its largest monthly drop since 2020 and retail sales had their first drop in seven months, “both encouraging signs,” said Jiayi Xu, an economist at Realtor.com.

This data, together with indications of a slowing job market, suggests that the Fed’s restrictive monetary policy is passing through to the economy, she said.

“While [Federal Reserve Chair Jerome] Powell would not rule out the possibility of another rate hike in December after the November Fed meeting, the Federal Reserve remains committed to being data dependent,” Xu said. “Recent incoming data is making a rate hike far less likely.”

All this points to mortgage rates continuing to drop, as they have in recent weeks, she said.

Homebuyers take advantage of cooling rates

Would-be homebuyers have wasted no time moving on cooling rates in the past few weeks.

“Purchase and refinance applications are both at their highest level in over a month because of the slight decline in mortgage rates,” said Bob Broeksmit, MBA president and CEO. “2023 has been a challenging year for prospective homebuyers, but MBA expects some relief, with mortgage rates declining gradually and for-sale inventory increasing slightly.”

In an updated forecast released on Tuesday, Lawrence Yun, chief economist for the National Association of Realtors, said that the 30-year mortgage and the Fed’s benchmark lending rate have likely crested.

“I believe we’ve already reached the peak in terms of interest rates,” Yun said. “The question is when are rates going to come down?”

Yun forecasts that mortgage rates will drop to between 6% and 7% by the spring buying season and anticipates that more sellers will enter the market.

What’s ahead in 2024?

There is room for mortgage rates to fall further, said Lisa Sturtevant, chief economist for Bright MLS.

“The gap between the 10-year Treasury yield and the 30-year fixed rate mortgage rate is historically around 180 basis points,” she said. “While the gap has narrowed somewhat, the 30-year mortgage rate remains 280 basis points higher than the bond yield.”

By historical norms, she said, mortgage rates should be under 6.5%.

“Mortgage rates will not come down quickly, nor will they decline to the sub-5% level that we have had since the Great Recession,” Sturtevant said. “However, some homebuyers are trying to act opportunistically this fall to take advantage of the dip in rates.”

Still, a major constraint continues to be very limited inventory.

“For those homebuyers who can wait, the spring will bring more new listings and lower mortgage rates,” she said.

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