Freddie Mac: Mortgage Rates Inch Up

Freddie Mac’s weekly Primary Mortgage Market Survey report released Friday shows that fixed mortgage rates inched up slightly, even as mortgage application activity sank to a quarter-century low and the cost of borrowing continues to weaken the housing market.

Freddie Mac Chief Economist Sam Khater, however, believes that as inflationary pressures continue to ease, lower mortgage rates are on the horizon for 2023.

“Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tailwind of Millennial renters will provide support to the purchase market,” Khater said. “Moreover, if rates continue to decline, borrowers who purchased in the last year will have opportunities to refinance into lower rates.”

According to the report:

• 30-year fixed-rate mortgage averaged 6.48% as of Jan. 5, up from last week when it averaged 6.42%. A year ago at this time the 30-year FRM averaged 3.22%
• 15-year fixed mortgage rate averaged 5.73%, up from last week when it averaged 5.68%. A year ago at this time, the 15-year FRM averaged 2.43%.

Freddie Mac said the primary mortgage market survey focuses on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.

George Ratiu, senior economist for Realtor.com, noted that capital markets are reacting to the uncertainty brought about by the dichotomy between mounting recession expectations and the incoming economic data which shows continued resilience.

"With a Federal Reserve committed to bringing inflation down, investors expect business investments and consumer spending to pull back. However, with most Americans still employed and seeing modest pay gains, the pullback in spending has yet to meaningfully materialize," Ratiu said. "And with more than 10 million open jobs and still not enough applicants to fill them, the labor market would have to experience a sharp and significant drop to move the needle on spending. This scenario is more likely if corporate executives overreact to the recession chatter and preemptively cut payrolls which would create a self-fulfilling downward spiral."

He added he sees a real estate market that is firmly in the winter season, with high prices and rates creating a barrier for many buyers on the road to homeownership.

"Even as prices dropped 10% from the summer peak nationally, home values were still up by double-digits from last year in 79 out of the top 150 largest metros during November 2022," Ratiu said. "With the 30-year mortgage rate at 6.48%, the buyer of a median-priced home is looking at a monthly payment that is 64% higher than last year. We may have to wait until the start of the spring shopping season for more clarity on the direction of housing markets this year, especially as both buyers and sellers are pulling back from the marketplace.”