Mortgage rates move down again

Mortgage rates fell four basis points this week, continuing the sideways movements of recent periods, Freddie Mac said.

Its Primary Mortgage Market Survey found the average for the 30-year fixed-rate loan was 6.35% on May 11, down from 6.39% one week ago, but 105 basis points higher than the 5.3% posted for the same time period in 2022.

For the first time in three weeks, the 15-year FRM moved in the same direction as the 30-year loan, falling one basis point to 5.75%. A year ago, it averaged 4.48%.

The recent mortgage rate trend is a "welcome departure" from the rapid increases of a year ago, Sam Khater, Freddie Mac chief economist, said in a press release.

"While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023," Khater said. "This should bode well for the trajectory of mortgage rates over the long-term."

The 10-year Treasury yield rose earlier this week after its declines late last week related to the Federal Open Market Committee's move to raise short-term rates by 0.25 percentage points.

On May 4, the 10-year yield ended the day at 3.35%. By May 9, it was up 17 basis points to 3.52%, but one day later sank to 3.44%. As of noon eastern time on Thursday, it was at 3.39%, although at one point the 10-year was even lower at 3.35%.

Zillow's mortgage rate tracker was at an average of 6.27% for the 30-year FRM on Thursday morning, up from 6.15% one week earlier. That metric, based on offers that come through the site, likely showed a quicker reaction in mortgage pricing to the 25 basis point increase in short-term rates.

Wage growth remaining higher than the Fed's inflation target, meaning the fight is far from over is why rates were higher in the view of Orphe Divounguy, senior macroeconomist at Zillow Home Loans.

"Long-term interest rates depend on current and expected inflation as well as the economic outlook," Divounguy said in a Wednesday night statement. "While U.S. economic growth is slowing, core inflation hasn't budged and financial stress from the previous month's banking sector turmoil has lessened somewhat."

The Consumer Price Index released on Wednesday rose 4.9% year-over-year for all items, and 5.5% when food and energy costs are taken out. The data showed inflation was cooler than expected, according to Bloomberg.

But even with positive signs, "the Fed will remain prepared to further tighten policy until it sees more concrete evidence that inflation is waning," Divounguy commented. "And until then, the yield on the U.S. 10-year Treasury will remain high, and mortgage rates — which tend to follow the 10-year — will also stay elevated."