What happened to mortgage rates this week?
The Freddie Mac 30-year mortgage rate declined 7 basis points to 7.11% this week, its fourth straight weekly decline. Even so, it remains 87 basis points above a year ago, and the downtrend trend could potentially reverse next week as the 10-year yield returns to 5%. The strong October jobs report showed the labor market holding up well, clearing the way for the Fed’s next rate hike. On Tuesday morning, before the CPI release, Fed Governor Christopher Waller said a larger 50-basis-point move should be considered in December’s meeting if inflation came in hot. Shortly afterward, the October CPI report came in hotter than forecast, pushing the 10-year Treasury yield toward 5%. A December hike is now essentially priced in. The debate is no longer if the Fed hikes, but how far and how fast.
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What does this mean for the housing market?
Today’s homebuyers are squeezed by both high mortgage rates and high inflation, and inflation is the bigger long-term problem. High rates raise monthly payments and shrink the loan a buyer can qualify for, and the recent pullback in pending sales shows how sensitive buyers are. But persistent high inflation is what keeps the Fed hiking and rates elevated. Inflation also leaves households with less to put toward a home, especially when wages lag prices. First-time buyers feel it most. With no equity to lean on, they must save a down payment from budgets already stretched thin. Even if rates ease, living costs rising faster than pay will keep weighing on demand for years.
