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Mortgage rates tick down ahead of Fed meeting next week

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Mortgage rates fell slightly this week and were broadly flat ahead of the Federal Reserve’s rate-setting meeting next week.

Freddie Mac data released Thursday showed the average rate on 30-year fixed-rate mortgages was 6.13% in the week ending Jan. 26, down from 6.15% the week before. A year ago the 30-year fixed interest rate was 3.55% for him.

“Mortgage rates continue to fall, and as a result, homebuying demand is unwinding from months of freezing in the housing market,” said Sam Cater, chief economist at Freddie Mac. Decent homebuyers remain sensitive to changes in mortgage rates, but there remains ample demand, buoyed by first-time homebuyers.”

After rising for much of 2022, spurred by the Fed’s tough rate hikes to curb sharp inflation, mortgage rates have trended downward since November, with inflation peaking Data continue to show that it is possible. Mortgage rates last week hit their lowest level since September.

Average mortgage interest rates are based on mortgage applications received by Freddie Mac from thousands of lenders nationwide. Only borrowers with a 20% down payment and good credit are included in this study. Many buyers with low upfront payments or less than ideal credit end up paying more than the average rate.

The Fed is expected to continue its rate hike campaign at its two-day meeting from January 31st to February 1st. Last year’s conference increased by 0.5 points and 3/4 points.

The Fed does not set interest rates that borrowers pay directly on their mortgages. But their actions affect them. Mortgage rates tend to track his 10-year Treasury yield, which fluctuates based on a combination of expectations of Fed action, actual Fed action, and investor reaction.

As bond yields rise, mortgage rates also rise. When interest rates fall, mortgage rates tend to follow suit.

Realtor.com economist Jiayi Xu said: “While companies and investors are watching the market closely, the recent massive layoffs in the tech sector combined with Monday’s recovery in the stock market are giving mixed signals.”

On the one hand, many tech companies burning cash are struggling with the Fed’s rate hikes, she said. Investors, on the other hand, are pleased with the slowdown in inflation and expect interest rate rises to begin to ease or stabilize in the coming months.

Economic indicators such as low unemployment and declining inflation do not indicate a recession, Shu said. “But it’s important to keep in mind that monetary policy takes time to have an impact, and these economic indicators may not yet show the full effect of restrictive policies.

The Fed may continue to raise rates this year, but Xu said the moderate pace would help create a soft landing for the economy by balancing the risk of lowering inflation without pushing up unemployment. rice field.

“Despite slowing inflation, expected ongoing restrictive monetary policy could keep mortgage rates in the 6% to 7% range in the short term,” it said. she said.

The downward trend in mortgage rates since November has had a positive impact on housing affordability for mortgage borrowers.

Homebuyer affordability improved in December, with the national average payment falling 2.9% to $1,920 from $1,977 in November, according to the Mortgage Bankers Association.

Many buyers are taking advantage of the relatively low interest rates of the past few weeks. Mortgage applications last week were up 7% from his one week earlier, according to MBA.

“Borrower demand will continue to increase through early 2023 due to lower mortgage rates,” said Bob Broeksmit, president and CEO of MBA. “Mortgage applications have increased for his third consecutive week. Purchase demand remains below year-ago levels, but lower interest rates and improved affordability are favorable developments for the housing market heading into the spring. ”

Buyer traffic is recovering in many markets, although inventory improvements are slow.

“Concerns over high costs and economic uncertainty have caused many buyers to pause their purchasing decisions, leading to a decline in transactions,” said Xu. “But increased competition may have created an opportunity for first-time homebuyers.”

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