Mortgage rates decrease for a fourth week

Mortgage rates continued to drop this week on decreased demand in the housing market and expectations the Federal Reserve will lift interest rates by less than 75 basis points when the central bank's rate-setting committee meets next week.

The 30-year fixed-rate mortgage averaged 6.33%, down from 6.49% last week, according to mortgage packager Freddie Mac. A year ago, the 30-year FRM averaged 3.10%.

The 15-year fixed-rate mortgage averaged 5.67% also down from last week when it averaged 5.76%. A year ago, the 15-year FRM averaged 2.38%.

AFFORDABILITY SQUEEZING HOMEBUYERS’ WALLETS AS BUILDERS FACE 'WORST-CASE SCENARIO'

Mortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth. Over the last four weeks, mortgage rates have declined three quarters of a point, the largest decline since 2008. 

While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.

"While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates," said Sam Khater, Freddie Mac's chief economist.

Mortgage rates are still more than double what they were a year ago, mirroring a sharp rise in the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including global demand for U.S. Treasuries and investor expectations for future inflation, which heighten the prospect of rising interest rates overall.

The Federal Reserve, which has been hiking its short-term lending rate since March in a bid to crush the highest inflation in decades, raised its rate again early this month by 0.75 percentage points, three times its usual margin, for a fourth time this year. Its key rate now stands in a range of 3.75% to 4%.

The CME FedWatch tool shows about an 80% chance of a 50 basis point increase and a 20% chance of another 75 basis point lift the Fed's next meeting. A basis point is one hundredth of one percent.

FED'S POWELL SIGNALS SMALLER INTEREST RATE HIKES COULD BEGIN IN DECEMBER

Markets rallied last week after Fed Chair Jerome Powell signaled that the central may increase its key interest rate by just a half-point at its December meeting. Rate increases could then fall to a more traditional quarter-point size at its February and March meetings, based on previous Fed forecasts. Powell said the Fed will likely have to keep rates elevated for longer than originally planned, as inflation has eased somewhat but remains way above the central bank’s 2% target.

The sharp rise in mortgage rates this year, combined with still-climbing home prices, have added hundreds of dollars to monthly home loan payments relative to last year, when the average rate on a 30-year mortgage barely got up above 3% much of the time.

That’s created a significant affordability hurdle for many would-be homebuyers, spurring this year’s housing market downturn. Sales of previously occupied U.S. homes fell for the ninth consecutive month in October, hitting the slowest pre-pandemic annual sales pace in more than 10 years.

The Associated Press contributed to this article.

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