Mortgage Rates Slip Lower for a Second Straight Week

A weak housing market can point to slower economic growth ahead, which can reduce the returns investors seek on bonds and, in turn, help push mortgage rates lower and ease some of the strain facing the housing sector, said Realtor.com Senior Economist Joel Berner.

Mortgage rates declined for a second week in a row, a move that home shoppers hope will last, though economists say it may do little to change overall market conditions.

The latest Freddie Mac Primary Mortgage Market Survey released Thursday put the average 30-year fixed mortgage rate at 7.24%, down eight basis points from 7.32% the previous week, when it posted its first drop in two months. The 30-year fixed rate is still higher than a year earlier, when it averaged 6.17%. The 15-year fixed rate averaged 6.60%, down from 6.68% a week earlier and above the 5.41% average from a year ago.

By Thursday afternoon, Mortgage News Daily said the average rate had ticked back up to 7.29%.

The drop followed a pullback in the 10-year Treasury yield, which averaged about 5.02% over the past week compared with 5.13% the week before. One economist said the move was driven in part by continued stock market volatility, which pushed investors toward the relative safety of government debt.

“It could be argued that weak housing market data, namely softer home construction activity, record-low pending sales, and declining new home sales, are creating a feedback loop as well,” said Realtor.com Senior Economist Joel Berner in a statement. “A struggling housing market can be a sign of weaker economic growth to come, which lowers the returns investors demand on their bond purchases. In turn, this allows mortgage rates to fall and hopefully alleviate some of the negative effects being experienced by the housing market.”

At its latest meeting, the Federal Reserve’s Open Market Committee kept the benchmark interest rate unchanged, although two members voted for a 25 basis point increase. Berner said prediction markets had already been leaning toward a rate hike in December, and that expectation strengthened after the meeting.

“Expectations of further Fed tightening are widespread, but the upcoming data releases on inflation and employment before the early-December meeting will give stronger indication of whether upward pressure on mortgage rates is in store,” he said. “The Fed appears laser-focused on the price level, and another month of core inflation coming in above their target of 2% would justify those rate hike expectations.”

Berner added that while the week’s decline in mortgage rates is welcome for the housing market, it may not be enough to make a major difference.

“It comes during a period in the year where home sales activity is usually more muted anyway,” Berner said. “The best time of year to buy a home has passed for most markets in the country, and the winter slowdown is upcoming, so the rate relief this week may not have much of an impact on the market. Both buyers and sellers are hoping that the downward trajectory of the last two weeks is a sign of things to come, and that the great housing market unlocking becomes a reality in the years ahead.”