Mortgage rates drop as inflation concerns ease

Mortgage rates took a step back over the past week as inflation worries eased, Freddie Mac reported.

The 30-year fixed-rate mortgage average declined 9 basis points to 5.13% for the weekly period ending August 18, according to Freddie Mac’s Primary Mortgage Market Survey. The drop comes, though, one week after the 30-year rate leaped 23 basis points to 5.22%.

Consumers and lenders have both struggled to navigate the year’s volatile movements. Since hitting 5% in mid April, 30-year rates have vacillated between 4.99% and 5.81%. One year ago, the 30-year average came in at 2.86%.

Average rates for 15-year and adjustable-rate mortgages also inched downward over the past seven days after jumping the prior week.

The 15-year fixed-rate dropped to 4.55% from 4.59%, while one year ago, it averaged 2.16%. The average of the 5-year Treasury-indexed hybrid adjustable-rate mortgage fell 4 basis points to 4.39% from 4.43% week over week. At the same time last year, the 5-year ARM sat at 2.43%.

Last week’s release of the Consumer Price Index, which showed inflation moderating more than economists predicted in July, helped lead to downward rate pressure.

“While both consumer and producer prices showed increases in July, the rate of increase slowed substantially,” said Paul Thomas, vice president of capital markets at Zillow, in a research statement.

Prices rose 8.5% last month on an annual basis, with no increase month over month. 

“Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” Freddie Mac Chief Economist Sam Khater said in a press release. 

Markets initially reacted by rallying to equities, according to Thomas. “Investors viewed this data as an indication that the Federal Reserve may not have to increase short-term rates as much as previously estimated,” he said.

But the decline in rates has yet to result in a turnaround in mortgage volumes, as housing markets continue to find balance and adjust to this year’s changes. The Mortgage Bankers Association reported originations came in at their lowest since 2000 last week. 

“The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability,” Khater said, noting current levels are unlikely to change substantially. 

“As a result, over the rest of the year purchase demand likely will continue to drag, supply will modestly increase and home price growth will decelerate,” he said.

Investors will be looking closely at the recent meeting minutes of the Federal Open Market Committee and any comments from Fed officials that could influence rate movements in  the coming week.