Positive inflation news drives mortgage rates lower

other Favorable CPI report Mortgage rates fell this week amid widespread expectations that the Federal Reserve will raise interest rates in December.

Freddie Mac’s primary mortgage market survey on November 16 showed that the 30-year fixed-rate mortgage rate was 7.44, lower than 7.5% a week ago But much higher than 6.61% Same time last year.

The 15-year FRM fell 5 basis points to 6.76% from 6.81% a week ago and was 5.98% a year ago.

“Mortgage rates trended lower for a third straight week as new data showed inflationary pressures are receding,” Freddie Mac Chief Economist Sam Khater said in a news release. A combination of low inflation and lower mortgage rates may attract more potential homebuyers into the market. “

Although the 10-year Treasury yield hit the 5% mark in late October, it had risen to around 4.7% at the beginning of this week.

But once Tuesday’s consumer price index showed slower-than-expected inflation, yields fell again as markets became more convinced the Federal Open Market Committee would not raise interest rates.

Following the news, the 10-year Treasury note rate fell to 4.43% on Tuesday. Rates have remained around that level, but as of 11:50 a.m. Thursday, they were at 4.47%.

While changes in mortgage rates and the 10-year Treasury note are independent of FOMC actions, investors typically factor their expectations into these longer-dated instruments.

Optimal Blue website data shows that the 30-year passing rate on November 15 was 7.409%, up from 7.338% the previous day. But on November 13, the 30-year FRM was 7.534%. On November 8, it was 7.444%.

Zillow’s rate tracker reported the 30-year FRM rate in mid-morning Thursday at 7.09%, up 5 basis points from Wednesday but below last week’s average of 7.25%.

Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said in a statement on Wednesday that “speeches from Fed officials, higher-than-expected retail sales and inflation data indicate that the Fed may not reverse policy immediately.” Inflation is cooling. , the market expects that the Federal Reserve may no longer raise policy interest rates, and core inflation remains higher than the Federal Reserve’s target. “

But not all the news is bad, Divounguy said. The recent decline in 10-year Treasury yields should ease financial and credit conditions. But this is offset by increased government borrowing, meaning monetary policy must remain restrictive.

Still, “as long as core inflation continues to move in the right direction, mortgage rates may eventually start to level off,” Diwanji said. “Less volatile rates will be good news for potential homebuyers.”

At a recent event for the National Association of Realtors, Lawrence Yun, the organization’s chief economist, said that at a 10-year Treasury yield of 4.4% (a spread of 200 basis points), that’s on the high end of historical standards, 30 The annual FRM should indeed be 6.4%. “The bond market is forcing the Fed to pivot.”

But Yun also believes that federal funds rates and mortgage rates have peaked, but “the question is when will rates come down?”

He believes the 30-year FRM for the spring 2024 home buying season will be between 6% and 7%.

Nigel Green, CEO of deVere Group, an international asset management company, believes the Federal Reserve will raise interest rates in December.

“However, we believe that inflation will continue to progress more slowly for some time as it returns to the 2% target than we have seen to date,” he said in the release. “As such, we The Fed will raise rates again next year to give that a little boost.”

Redfin said in a press release on November 16 that the Federal Reserve is not only unlikely to raise short-term interest rates this year, but may also start cutting interest rates earlier than market expectations.

Ksenia Potapov, an economist at First American Financial, noted that the consumer price index (CPI) for housing, a lagging indicator, rose 0.3% from the previous month. Year-on-year growth of 6.7%.

Potapov said in a statement: “As we enter 2024, falling rents and home prices from last year will further weigh on overall inflation. At this moment, the Fed’s greatest virtue in fighting inflation will be patience.”

Marty Green, principal at mortgage law firm Polunsky Beitel Green, has believed for some time that the Fed is done raising rates this cycle, and “this report supports that,” he said.

“We expect the Fed to continue to maintain its rhetoric that it is prepared to raise interest rates if necessary, but believe that based on recently reported trends, they see no reason to do so,” Green wrote in an email.

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