Mortgage rates ticked up this week for the second week in a row, but remain more than a full percentage point lower than their high last year.
The 30-year fixed-rate mortgage averaged 6.66% in the week ending January 11, up from 6.62% the previous week, according to data from Freddie Mac released Thursday. A year ago, the average 30-year fixed-rate was 6.33%.
Even with the past two week’s increases, mortgage rates are making smaller moves than during the nine-week drop at the end of 2023 and are still more than a full percentage point lower than their highest levels of last year: 7.79%. This continues to bring improved affordability for homebuyers who’ve been struggling in one of the least affordable markets in decades.
“Mortgage rates have not moved materially over the last three weeks and remain in the mid-six percent range, which has marginally increased homebuyer demand,” said Sam Khater, Freddie Mac’s chief economist, in a statement.
But, he added, even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes.
“Affordability remains a major headwind for buyers,” said Khater. “Potential homebuyers should look closely at existing state and local resources, such as down payment assistance programs, which can considerably help defray closing costs.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. A current buyer’s rate may be different.
Inflation remains above Fed’s target
Cooling inflation at the end of 2023 was welcome news after the Federal Reserve’s historic series of rate hikes intended to curb inflation.
The Fed’s favored inflation metric — the “core” Personal Consumption Expenditures price index that excludes energy and food prices — cooled to 3.2% for the year that ended in November. That’s a step closer to the central bank’s 2% target rate.
That data, coupled with the Fed suggesting last month it may cut rates in the new year, had investors and markets optimistic about an improved inflation measure, which brought mortgage rates down.
But for would-be home buyers looking for further mortgage rate declines, December’s Consumer Price Index inflation report, released Thursday, is a setback showing inflation is sticky. US consumer prices rose 3.4% annually.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions, especially as related to inflation.
When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow. While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
“While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation,” said Jiayi Xu, an economist at Realtor.com in a statement.
Lower mortgage rates expected to bring new inventory
While mortgage rates trending lower is welcome news for homebuyers, those in the market are still dealing with the double whammy of low inventory and high home prices that continue to rise.
If mortgage rates resume their downward trend in the coming weeks, as expected, economists anticipate that the stubbornly low inventory of homes for sale will begin to increase.
“Looking ahead, we expect the overall downward trend will generate some positive impact on homeselling sentiment, fostering an anticipation of increased new listings in the market,” said Xu.
But, she added, the pace of mortgage rates declining is likely to be slower going forward than the dramatic nine-week drop at the end of 2023. This could mean that listings will appear more slowly and incrementally as sellers adjust.
“Given that about two-thirds of outstanding mortgages presently carry rates below 4%, a significant portion of individuals might choose to delay selling plans, waiting for the potential for even lower rates to purchase their next residences.”
