Mortgage Rates Dip as Fed Continues ‘Wait and See’ Approach

Freddie Mac reports in its latest Primary Mortgage Market Survey (PMMS) that the 30-year fixed-rate mortgage (FRM) averaged 7.76% as of November 2, 2023, down just three basis points from last week when it averaged 7.79%.

“The 30-year fixed-rate mortgage paused its multi-week climb, but continues to hover under 8%,” said Sam Khater, Freddie Mac’s Chief Economist. “The Federal Reserve again decided not to raise interest rates, but have not ruled out a hike before year-end. Coupled with geopolitical uncertainty, this ambiguity around monetary policy will likely have an impact on the overall economic landscape, and may continue to stall improvements in the housing market.”

Also this week, the 15-year FRM averaged 7.03%, unchanged from last week. A year ago at this time, the 15-year FRM averaged 6.29%.

On Wednesday, the Federal Reserve elected to hold the target rate at 5.25%-5.5%, the second such pause in rate hikes, but noted that price stability and maximum employment are the primary goals of the Federal Open Market Committee (FOMC).

“The U.S. Treasury Department announced on Wednesday that it will slow the pace of longer-dated debt issuance, announcing a lower-than-expected pick-up in 10-year and 30-year bond issuance,” noted Hannah Jones, Economic Research Analyst at Realtor.com. “However, longer-term debt issuance will continue to climb, which keeps upward pressure on mortgage rates. In general, an increase in a specific bond supply leads to a pick-up in the bond’s yields as more incentive is required to induce more investors to buy up the additional supply. So, the increase in debt issuance keeps upward pressure on longer-term bond yields and therefore mortgage rates, despite the increase being smaller-than-expected.”

And while rates dipped slightly, overall application volume continued to slide for the third consecutive week, as the Mortgage Bankers Association (MBA) reported purchase applications falling to their lowest level since 1995, and refinance applications to their lowest point since January 2023.

“Mortgage applications declined for the third consecutive week as low inventory and high rates continue to stifle borrower demand,” said MBA President and CEO Robert D. Broeksmit, CMB. “We were pleased to see that the Fed held short-term rates steady yesterday and continue to believe that it should not hike again and not sell its holdings of mortgage-backed securities until and unless the housing finance market has stabilized. These actions would help to lower mortgage rates and improve homebuyer affordability heading into 2024.”

Jones added, “This week’s economic developments are slightly on the positive side of neutral for mortgage rates. The shift in bond issuance did not take significant pressure off of longer-dated bond yields, but neither did it apply much additional pressure. Similarly, the Fed’s pause on rate hikes signaled that the FOMC will continue their ‘wait and see’ approach to future hikes, which means future policy is dependent on incoming economic data, which is currently unknown. Considering the seemingly relentless upward hike of mortgage rates over the last couple months, the lack of information to fuel another jump is relatively positive, even if the underlying conditions to warrant falling rates have not yet been achieved.”

The MBA also reported that homebuyer affordability improved slightly in September, with the national median payment applied for by purchase applicants decreasing $15 monthly from $2,170 in August to $2,155 in September. The MBA measured this via its Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time–relative to income. Year-over-year, the national median payment applied was up $214 from one year ago, an 11% year-over-year increase.

“Today’s buyers face scarce for-sale inventory, still-high listing prices, and multi-decade high mortgage rates, so any potential relief from climbing housing costs is welcomed,” said Jones. “October’s housing data highlighted the limited options and competitive conditions that today’s buyers face. Both active listing and new listings fell year-over-year in October, prices climbed, and homes spent slightly less time on the market which, combined with high mortgage rates, means home shoppers are facing higher housing payments and tighter market conditions this fall.”