Mortgage rates fall after CPI inflation report

Mortgage rates fall after CPI inflation report

Mortgage rates fall after CPI inflation report

A prospective home buyer, left, is shown a home by a real estate agent in Coral Gables, Florida.

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The average rate on the 30-year fixed-rate mortgage fell to 6.28% on Tuesday, according to Mortgage News Daily. It is now at its lowest level since mid-September.

The drop came after a lower-than-expected reading in November’s consumer price index, a widely watched measure of inflation. The report prompted investors to rush into US Treasuries, causing yields to fall. Mortgage rates loosely track the 10-year Treasury yield.

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“The second straight month of comfortable CPI data continues to create a case that inflation has turned a corner, but rates will be careful to read too much into that potential shift given the volatility in the data over the past few months,” said Matthew Graham, chief operating officer at Mortgage News Daily. “The bond market will also want to see what the Fed does with this information in tomorrow’s updated Fed rate forecast on the dot plot.”

Mortgage rates started to rise earlier this year and accelerated in the spring and summer, with the 30-year fixed rate rising from around 3% to well over 7% by the end of October. This sent the housing market into a freeze at first. Existing home sales fell for nine straight months and were down 24% in October year on year, according to the latest reading from the National Association of Realtors.

But rates then fell sharply in November after the October CPI report indicated that inflation was cooling down. The rate ended November at 6.63%. Some have suggested, albeit cautiously, that lower rates could bring buyers back into the market.

“There are some very very modest green shoots in recent weeks as rates have come down, but I’m not ready to be sucked into the conversation we had in August when we felt better,” Doug Yearley, CEO of luxury homebuilder Brothers Tollhe said during the company’s quarterly earnings call with analysts last week. Yearly was referring to a very short rate drop in August.

Redfin reported that homebuyer demand “started to pick up” in November. Its Demand Index, which measures requests for home tours and other home buying services from Redfin agents, was up 1.5% from the previous month, but down 20% from the year previous during the four weeks ending 27 November.

The overall volume of mortgage freezes is down 68% annually as the housing market struggles with rates

“There has been some relatively good news for the housing market lately, but we are far from out of the woods,” said Redfin deputy chief economist Taylor Marr. “Key indicators of home buying demand will likely be teetering on a knife edge with each release of data on the Fed’s path to lower rates.”

All that optimism, however, hasn’t translated into higher mortgage rate freezes for homebuyers, which are generally an indicator of future home sales. These rate freezes fell 22% in November, compared with October, and were down 48% year over year, according to technology and mortgage data firm Black Knight.

“It’s still extremely unaffordable even with rates going down, even with prices going down in each of the last four months. We’re still less affordable than we were at the peak of the market in 2006, and you’re seeing that resolve into the numbers of rate lock,” said Andrew Walden, vice president of corporate research strategy at Black Knight.

Walden indicates that inventory is still about 40% below where it should be, as homebuilders continue to pull back and potential sellers remain on the sidelines. Even as prices weaken and rates come down, he said both are still substantially higher than should be compared to incomes to make housing affordable by historical standards. And none of those are going to move that much in the foreseeable future.

“As we move through 2023, we’ll see prices continue to fall, hopefully incomes continue to grow and consume some of that gap, and I think we’ll probably see rates come down from where they are today, but that’s going to take a long time frame to get there,” Walden said.

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