Mortgage Rates Fall 8 Basis Points for the Second Week in a Row

What happened to mortgage rates this week?

The Freddie Mac 30-year mortgage rate dropped 8 basis points this week, from 7.32% to 7.24%, in conjunction with the 10-year Treasury yield, which averaged about 5.02% in the past week compared to 5.13% the week prior. The retreat in the Treasury yield was spurred on by volatility in the stock market, leading investors to seek safety in 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. 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.

The Federal Reserve’s Open Market Committee met yesterday and left the target interest rate unchanged, but two members dissented in favor of a 25 bps hike. Prediction markets already favored a hike in December, but that likelihood grew higher after the release. Expectations of further Fed tightening are widespread, but the upcoming data releases on inflation and employment before December 9th will give stronger indication of whether upward pressure on mortgage rates is in store. 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.

What does this mean for the housing market?

This week’s retreat in mortgage rates is certainly welcome news to anyone involved with the housing market, but it comes during a period in the year where home sales activity is usually more muted anyway. 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 2027.