Mortgage rates tumble after inflation report

Mortgage rates fell by almost half a percentage point this week as bond market investors reacted over the past several days to the possibility the Federal Reserve could pull back on its economic tightening.

The 30-year fixed-rate mortgage for the week ending Nov. 17 averaged 6.61%, compared with 7.08% seven days ago and 3.1% for the same period last year, according to the Freddie Mac Primary Mortgage Market Survey.

Some data points released over the past seven days indicate inflation is easing, which is leading market observers to predict a 50 basis point hike in short-term rates by the Federal Open Market Committee at its December meeting.

“While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market,” said Sam Khater, Freddie Mac chief economist, in a press release. “Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”

The benchmark 10-year Treasury yield opened trading on Thursday morning at 3.76%, down 32 basis points from where it opened at 4.08% on Nov. 10. On that day, the Consumer Price Index posted a 7.7% annual increase, lower than the markets expected.

“Bond yields tumbled as a result and mortgage rates — which had spent the last few weeks oscillating at or near 20-year highs — fell by more in one day than they have in at least a decade, and likely a lot longer,” said Matthew Speakman, Zillow Home Loans senior economist, in a statement issued on Wednesday night. “The sharp decline was welcome news for first-time buyers waiting for a more affordable entry point as well as those eager to move and buy their next home.”

But Thursday morning’s 10-year yield from opening until noon was 7 basis points higher from the previous day’s close following hawkish comments from St. Louis Fed Chair James Bullard about the need for more increases in short-term rates.

Zillow’s own rate tracker was at 6.29% for the 30-year FRM on Thursday morning. That was up 10 basis points from the prior day but down 28 basis points from the previous week’s 6.57%.

“The focus now shifts to what’s ahead and whether the persistent upward trend in mortgage rates may finally be a thing of the past,” Speakman said. “While that remains unclear, more signals of waning inflation pressures would almost certainly usher in additional rate declines.”

With this week’s results, Freddie Mac announced a change in its methodology from surveying mortgage lenders to taking rate data from applications submitted to its Loan Product Advisor underwriting system.

“In order to align with the historical PMMS approach, we will limit the selection of loan applications to conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit,” a Freddie Mac blog post explained.

With the change in methodology, the only other rate tracked by the Freddie Mac PMMS is the 15-year FRM. It no longer provides data for the 5/1 Treasury-indexed adjustable rate mortgage — nor will it offer data for any other ARM — because of a lack of data in the LPA system.

This week, the 15-year FRM averaged 5.98%, down 40 basis points from last week when it averaged 6.38%. A year ago at this time, it averaged 2.39%.