Mortgage rates drop again after inflation, Fed news

Mortgage rates declined this past week, as the latest Consumer Price Index report, along with the slowing of short-term rate increases by the Federal Reserve, calmed investors.

The Freddie Mac Primary Mortgage Market Survey reported the 30-year fixed rate loan averaged 6.31% for the period ended Dec. 15, down from 6.33% in the prior week. One year ago, the 30-year FRM was at 3.11%.

After peaking at 7.08%, the 30-year FRM average has dropped five consecutive weeks.

The 15-year FRM fell more on a week-to-week basis, dropping 13 basis points to 5.54% from 5.67%; for the same week in 2021, it was at 2.34%.

Softer inflation data and a modest shift in the Fed's monetary policy contributed to this week's rate drop, Freddie Mac Chief Economist Sam Khater said in a press release.

"The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand," Khater said. "The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high."

The Fed's 50 basis point increase in short-term rates was in line with market expectations in recent weeks.

Yields on the 10-year Treasury, the benchmark for the 30-year FRM, actually rose compared with Dec. 7, when it closed at 3.41%, to 3.61% on Dec. 12, before backing down again to 3.5% on Dec. 14. By 11:30 a.m. Eastern time on Dec. 15, the yield was at 3.46%.

The Mortgage Bankers Association's most recent Weekly Application Survey reported rates increased for the first time in five weeks.

"Last week notwithstanding, MBA expects the recent downward trend in mortgage rates to continue, which, along with moderating home prices, should encourage more homebuyers to return to the market in early 2023," said Bob Broeksmit, president and CEO, in a statement issued Thursday morning before the Freddie Mac release.

Zillow's rate tracker for the 30-year FRM was at 5.9%, down from the previous week's average of 6.03%.

The Federal Open Market Committee meeting was more hawkish than participants expected, Keefe, Bruyette & Woods analyst Bose George said in a Dec. 14 report. Nominal mortgage-backed securities spreads fell by 8 basis points to 144 basis points, but are still well-above historical averages.

"At first, the [FOMC] news took some wind out of the market's sails," Zillow Home Loans Senior Economist Matthew Speakman said in a statement issued Wednesday night. "But assurances from Fed Chair Powell that the central bank would likely shift their outlook should more evidence emerge that inflation pressures are waning buoyed investors' spirits, sending bond yields — and the mortgage rates they tend to influence — back downward."

Following the meeting, mortgage lenders are hoping that any further increases by the FOMC in 2023 will be of the more normal 25 basis point variety, said Marty Green, principal with the law firm of Polunsky Beitel Green.

"Interestingly, mortgage market participants are still optimistic that interest rates will actually fall in 2023," Green said in a statement. "The question is whether the market is just being overly optimistic or whether the market actually has a better reading on inflation and the possible effects of a recession than the Federal Reserve does."