Mortgage Rates Fall As Inflation Eases And Fed Signals Smaller Hikes Ahead

Mortgage rates fell to a two-month low this week as bond investors bet inflation will keep falling and the Federal Reserve signaled it will slow its pace of rate hikes.

According to a Freddie Mac report on Thursday, the average rate for a 30-year fixed mortgage fell to 6.49%, while the average rate for a 15-year fixed home loan fell to 5.761%. The averages retreated for the third week in a row.

Freddie Mac's chief economist said that mortgage rates continued to drop this week as optimism grew that the Federal Reserve will slow its pace of rate hikes.

The investors who buy mortgage bonds reacted to the economic data showing inflation easing from four-decade highs by lowering the rates on their mortgage bonds. Fixed-asset investors demand higher yields in order to protect their returns when inflation is high.

The Fed raised its benchmark rate six times this year in order to fight inflation. The rate the Fed charges banks for overnight lending at a 15-year high doesn't directly affect home loan rates, but it influences bond investors by signaling the direction of the economy

The risk of a recession is now at 50% according to the minutes of the November meeting. The Federal Open Market Committee has a majority of voting members who support slowing down the pace of tightening.

As soon as the December meeting, the time for slowing the pace of rate increases may be, according to Fed Chairman Powell. The length of time it will be necessary to hold policy at a restrictive level is more important than the timing of that moderation.

According to a forecast last week from the Mortgage Bankers Association, the average 30-year fixed mortgage rate will fall to 5.2% in the fourth quarter of 2023.

The president of the Mortgage Bankers Association said that with signs of economic slowing in the U.S. and globally, mortgage rates will remain volatile but are likely to trend downward.