Mortgage rates fell this week due to a decrease in demand in the housing market and expectations that 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 average was 6.33%, down from 6.49% last week, according to mortgage packager Freddie Mac. A year ago, the FRM averaged 3.10%.
The 15 year fixed-rate mortgage averaged 5.67%, down from last week when it averaged 5.76%. A year ago, the FRM averaged 2.38%.
Mortgage rates fell for the fourth consecutive week due to concerns over lackluster economic growth. Mortgage rates have declined three quarters of a point over the last four weeks, the largest decline since 2008.
While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction to purchase demand due to the lower rates, said Sam Khater, chief economist for Freddie Mac.
Mortgage rates are still more than double what they were a year ago, reflecting a 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 heightens the possibility 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 early this month by 0.75 percentage points, three times its usual margin, for a fourth time this year. Its key rate is now in a range of 3.75% to 4%.
The FedWatch tool shows an 80% chance of a 50 basis point increase and a 20% chance of a 75 basis point lift the Fed's next meeting. A basis point is one hundredth of one percent.
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 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 slightly but remains well above the central bank's 2% target.
The rise in mortgage rates this year, combined with still-changing home prices, has added hundreds of dollars to monthly home loan payments compared to last year, when the average mortgage rate barely got up above 3% much of the time.
This year's housing market downturn has resulted in a significant affordability hurdle for many would-be homebuyers. 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.