Mortgage Rate Drops to Lowest Point in Three Months — What Does It Mean for Home Buyers?

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Home buyers in the United States got some holiday cheer on Tuesday after average mortgage rates fell to their lowest level since mid-September, helped by a lower-than-expected inflation rate in November. Whether that leads to much relief in a historically expensive U.S. housing market remains to be seen.

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The average rate on the 30-year fixed mortgage declined to 6.28%, CNBC reported, continuing a recent slide. Mortgage rates shot much higher earlier in 2022 following a series of Federal Reserve interest-rate hikes designed to tame soaring inflation.

The Fed’s actions might finally be having a positive effect. As GOBankingRates reported on Tuesday, consumer prices in November eased to 7.1% — lower than most economist projections. That news created a rush to U.S. Treasury bonds, which caused both yields and mortgage rates to fall.

This week’s drop in mortgage rates has followed a recent pattern. On Dec. 8, Freddie Mac reported that the 30-year fixed-rate mortgage averaged 6.33%, which at the time represented the fourth straight week of declines.

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In a statement, Freddie Mac Chief Economist Sam Khater said mortgage rates have fallen due to increasing concerns over “lackluster” economic growth.

“Over the last four weeks, mortgage rates have declined three quarters of a point, the largest decline since 2008,” Khater added. “While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.”

Even with the recent dip in mortgage rates, they remain historically high. Mortgage rates started 2022 at around 3% and pushed above 7% by the end of October — their highest level since 2001. This has led to a slight cooling in the U.S. housing market, which has soared to record high home prices this year.

As CNBC noted, citing a report from Redfin, homebuyer demand “started ticking up” in November.

“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods,” said Redfin Deputy Chief Economist Taylor Marr. “Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down.”

But housing still isn’t exactly cheap. Home inventory remains about 40% shy of where it should be, according to Andrew Walden, vice president of enterprise research strategy at Black Knight. Meanwhile, homebuilders are not rushing to fill the void.

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“It’s still extremely unaffordable even with rates coming down, even with prices coming down in each of the last four months,” Walden told CNBC. “We’re still less affordable than we were at the peak of the market in 2006, and you’re seeing that play out in the rate lock numbers.”

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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