Mortgage rates decline after the CPI inflation report

The average 30-year fixed rate mortgage rate fell to 6.28% on Tuesday, according to the Daily Mortgage News. It is now at its lowest level since mid-September.

The drop came after a lower-than-expected reading of Consumer price index for November, which is a widely watched measure of inflation. The report prompted investors to rush into US Treasury bonds, causing yields to drop. Mortgage rates loosely track the yield on a 10-year Treasury note.

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“The second month in a row of reassuring CPI data continues to build the case that inflation has turned a corner, but rates will be cautious about reading too much into this potential turnaround given the volatility of data in recent months,” said Matthew Graham, president of the company. Operations Officer at Mortgage News Daily. “The bond market will also want to see what the Fed does with that information in tomorrow’s updated Fed Rate Outlook in a point chart.”

mortgage rates The rally started at the beginning of this year and accelerated in the spring and summer, with a steady 30-year transition from about 3% to more than 7% by the end of October. This sent the housing market into a deep tailspin early on. Existing home sales declined nine consecutive months They fell 24% in October year over year, according to the latest reading from the National Association of Realtors.

But rates then fell sharply in November, after the Consumer Price Index report for October indicated that inflation was easing. The rate ended November at 6.63%. Some have suggested, albeit cautiously, that a drop in interest rates could bring buyers back into the market.

Doug Yearley, CEO of the luxury homebuilder Toll Brothers, on the company’s quarterly earnings call with analysts last week. Annually it was referring to a very brief drop in the interest rate in August.

Redfin reported that homebuyer demand “began to pick up” in November. The demand index, which measures requests for home tours and other homebuying services from Redfin agents, rose 1.5% from the previous month but fell 20% from a year ago during the four weeks ended November 27.

“There’s been some relatively good news for the housing market recently, but we’re far from out of the woods,” said Taylor Marr, deputy chief economist for Redvine. “The leading indicators of home buying demand are likely to be hovering on a knife edge with every data release regarding the Fed’s path to eventual rate cuts.”

However, all of this optimism hasn’t translated into higher locks in homebuyers’ mortgage rates, which are generally an indicator of future home sales. Those interest rate locks were down 22% in November, compared to October, and down 48% year over year, according to mortgage technology and data firm Black Knight.

“It’s still very expensive even with lower prices, even with lower prices in each of the last four months. We’re still less expensive than we were at the peak of the market in 2006, and you’re seeing that happen,” said Andrew Walden, vice president of research strategy. The Black Knight Corporation, “Numbers at Lock Prices.”

Walden notes that inventory is still about 40% shy of where it should be, while home builders continue to slump and potential sellers remain on the sidelines. Even with weak prices and falling rates, he said, both are still far too high to compare with income to make housing affordable by historical standards. And none of those will move much anytime in the near future.

“As we move throughout 2023, you will see prices continue to fall, hopefully income will continue to grow and eat up some of that gap, and I think probably we will see prices fall to where they are today, but it will take a long time to get there,” Walden said.