Mortgage rates retreat, but Fed indecision could reverse course: Freddie Mac

Mortgage rates took a break from the steady climb to 8% this week, but uncertainty over the economy and the Federal Reserve's next move could undo this progress, Freddie Mac said. 

The average 30-year fixed-rate mortgage was 7.76% for the week ending Nov. 2, according to Freddie Mac's latest Primary Mortgage Market Survey. That's a decrease from the previous week when it averaged 7.79%. A year ago, the 30-year fixed-rate mortgage averaged 6.95%. 

The average rate for a 15-year mortgage was 7.03%, unchanged from last week and up from 6.29% last year.  

The dip comes as the Fed announced it would not raise interest rates at its November meeting. While the central bank has not put a recession back into the forecast, it remains concerned over persistent inflation, which trended higher in August and September. Job growth has also proven resilient and rose by 336,000 in September, while the unemployment rate held steady at 3.8%. Fed Chair Jerome Powell told reporters following the Wednesday announcement that future rate hikes were not entirely off the table.  

"The 30-year fixed-rate mortgage paused its multi-week climb but continues to hover under eight percent," Freddie Mac's Chief Economist Sam Khater said. "The Federal Reserve again decided not to raise interest rates but have not ruled out a hike before year-end. Coupled with geopolitical uncertainty, this ambiguity around monetary policy will likely have an impact on the overall economic landscape and may continue to stall improvements in the housing market."

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No clear path to lower mortgage rates

Mortgage rates are also loosely impacted by the 10-year Treasury yield, which has risen a whole percentage point since the beginning of the third quarter. On Wednesday, the U.S. Treasury Department announced that it would slow the pace of longer-dated debt issuance, announcing a lower-than-expected pick-up in 10-year and 30-year bond issuance in the November 2023 to January 2024 quarter. 

However, the shift in bond issuance won't take significant pressure off of longer-dated bond yields, nor will it apply much additional pressure, according to Realtor.com Economic Research Analyst Hannah Jones. 

"In general, an increase in a specific bond supply leads to a pick-up in the bond's yields as more incentive is required to induce more investors to buy up the additional supply," Jones said. "So, the increase in debt issuance keeps upward pressure on longer-term bond yields and therefore mortgage rates, despite the increase being smaller-than-expected."

While none of the economic news announced this week outlined a clear path to a lower mortgage rate, the lack of information to fuel another jump is "relatively positive," Jones said.  

"Today's buyers face scarce for-sale inventory, still-high listing prices, and multi-decade high mortgage rates, so any potential relief from climbing housing costs is welcomed," Jones said. "October's housing data highlighted the limited options and competitive conditions that today's buyers face. 

"Both active listing and new listings fell year-over-year in October, prices climbed, and homes spent slightly less time on the market, which, combined with high mortgage rates, means home shoppers are facing higher housing payments and tighter market conditions this fall," Jones continued. 

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Here's why housing supply is low

The spread between current mortgage rates and the locked-in rates of current homeowners is widening: 60% of existing first-lien mortgages are at rates below 4%, and almost 23% are below 3% as of the second quarter of 2023, according to data provided by the CoStar Group.

"A lack of pressure to sell has put a crunch on an already supply constrained market; the inventory of existing homes on the market is 1.13 million, 8.1% fewer than a year ago," CoStar Group Managing Director and Chief U.S. Economist Christine Cooper said. "Low supply has kept prices elevated despite rising rates, and the median sale price of an existing home was 2.8% higher in September than it was a year ago."

However, the locked-in effect is one of many reasons homeowners are staying put, according to a recent Fannie Mae survey. While 21% cited wanting to keep their lower mortgage rates, 19% said they stayed because they liked their current home, and 13% said home prices are too high to buy another home. The findings suggest that a relatively strong majority of mortgage borrowers' future moving plans may not be affected by their mortgage rate.

"All in all, there are a confluence of factors and trends contributing to the lack of housing inventory in the United States, with the lock-in effect functioning as one of several," Fannie Mae said. "For more homeowners to be incentivized to put their homes on the market, other factors beyond mortgage rates may have to change, such as older generations aging out of their homes. As it stands now, and given these results, even if mortgage rates were to decline meaningfully in the intermediate term, we would not expect to see a surge in home listings."

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