Mortgage rates end 2023 with 9 straight weekly drops

Mortgage rates slowed their downward momentum to close out 2023, but still finished the year with nine straight weekly drops, according to Freddie Mac. 

The average rate of the 30-year fixed mortgage slid down 6 basis points to 6.61% for the weekly period ending Dec. 28 in the final release of Freddie Mac's Primary Mortgage Market Survey for 2023. Seven days ago, the average came in at 6.67%. Despite a precipitous recent fall, the latest 30-year rate is still 19 basis points higher than the 6.42% average recorded in the final week of 2022. 

Meanwhile, the 15-year fixed rate edged down to 5.93% from 5.95% week over week. One year ago, it averaged 5.68%.

"The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down," said Sam Khater, Freddie Mac's chief economist, in a press release. 

After coming in at its highest point in 23 years of 7.79% in late October, the 30-year average has tumbled almost 120 basis points in a little over two months, as signs of a cooling economy eased market worries. The 15-year average also briefly crossed over the 7% mark two months ago.

The interest rate retreat picked up in the final few weeks of the year after the December 2023 meeting of Federal Reserve officials, whose comments pointed to a marked shift in their approach to monetary policy next year.

Enthusiasm among investors shot up as a result, putting downward pressure on interest rates, even while some Fed governors have since struck a more cautious tone.

Recent news carries with it a dose of optimism for the home lending community, looking for a good start in 2024 after two years of struggles. "Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation and a nascent rebound in the housing market," Khater said. 

But lenders may need to build strategies around current rate levels for the foreseeable future, with current averages already near economists' lower-end predictions. A steeper decline would only likely occur in the event of unforeseen economic disruption, according to Jay McCanless, senior vice president of equity research at Wedbush.

Current positions should still support a more active purchase market compared to 2023 but won't lead to heightened refinance activity, McCanless noted. 

Placing some limits on how low rates could go is the still-wide spread between 10-year Treasury yields and mortgage averages. Two years ago, the spread stood close to 170 basis points, near its historical average. During the height of volatility earlier this year, it had grown to over 300 basis points.

"We don't know what it's going to take to bring those spreads back to something closer to normal," McCanless said. "I think if there's a big leading question for '24, it's what's going to make spreads narrow?"

The latest 10-year Treasury yield came in at 3.85% midday Thursday, falling from 3.89% on Dec. 22 in a muted trading week. 

Other leading rate trackers showed similar-sized decreases as Freddie Mac's survey over the past seven days with Optimal Blue's product and pricing engine placing the 30-year conforming average at 6.56% for Wednesday. The rate fell from 6.63% on Dec. 21.

Zillow's nationwide 30-year rate declined to an average of 6.2% on Thursday morning, down 7 basis points from last week's 6.27%.