Mortgage rates trend down on positive inflation news

Another favorable Consumer Price Index report helped to drive mortgage rates down this week, with general expectations growing that the Federal Reserve will not raise rates in December.

The Freddie Mac Primary Mortgage Market Survey for Nov. 16 put the 30-year fixed rate mortgage at 7.44, down from 7.5% a week ago but well above the 6.61% for the same time last year.

The 15-year FRM was 5 basis points lower, to 6.76% from 6.81% a week ago. A year ago, it was at 5.98%.

“For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding,” said Sam Khater, Freddie Mac chief economist, in a press release. “The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the market.”

Even though the 10-year Treasury yield had backed down from touching the 5% mark in late October, at the start of this week it had ticked up to just south of 4.7%.

But once the CPI release on Tuesday indicated slower than anticipated growth in inflation, the yields turned downward again as the market became more convinced that the Federal Open Market Committee will not raise rates.

In the aftermath of the release, the 10-year was down to 4.43% on Tuesday. Rates have stayed close to that level, but as of 11:50 Thursday morning it was at 4.47%.

While mortgage rates and the 10-year Treasury move independently of the FOMC’s actions, investors typically bake their expectations into those longer-term instruments.

Data on the Optimal Blue website put the 30-year conforming at 7.409% on Nov. 15, up from 7.338% the previous day. But on Nov. 13, the 30-year FRM was at 7.534%. On Nov. 8, it was 7.444%.

Zillow’s rate tracker had the conforming 30-year FRM at 7.09% mid-morning on Thursday, up 5 basis points from Wednesday but down from last week’s average of 7.25%.

“Federal Reserve officials’ speeches, higher than expected retail sales and inflation data signaled that an immediate Fed policy reversal may not be in the cards just yet,” a Wednesday statement from Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said. “Although inflation is cooling and the market expects that the Federal Reserve may be done raising its policy rate, core inflation is still higher than the Fed’s target.”

But not all the news was bad, Divounguy said. That recent decline in the 10-year yield should ease financial and credit conditions. But increased government borrowing counters that, meaning that monetary policy has to remain in a restrictive phase.

Still, “so long as core inflation continues to move in the right direction, mortgage rates may finally start to level off,” said Divounguy. “Less rate volatility would be welcome news for prospective homebuyers.”

At a recent National Association of Realtors event, the group’s chief economist Lawrence Yun said that with a 4.4% 10-year yield, at a 200 basis point spread, the high end of historic norms, the 30-year FRM really should be…