Today's Mortgage Rates - 12/07/2023

A Return to Summer for Rates

It's beginning to look a lot like... August? Mortgage rates drove down to four-month lows this week.

Freddie Mac reported today that the average offered interest rate for a conforming 30-year fixed-rate mortgage decreased by nineteen basis points (0.19%) to 7.03%, a decline large enough to leave them at levels last seen in the week of August 10th.

Shorter-term fixed mortgage rates managed an even larger decline, posting a twenty-seven basis point fall, landing at 6.29%, an 18-week low. Home loans with shorter terms are most popular with homeowners looking to refinance, and even a decline of nearly three-quarters of a percentage point from this year's highs probably isn't enough to entice many homeowners to change to a shorter mortgage.

Fixed mortgage rates have retreated meaningfully in recent weeks, lessening the appeal of choosing an ARM as an alternative. Freddie Mac's legacy survey data pegs the interest for a hybrid 5/1 ARM at 6.64%, down eleven basis points (0.11%%) from last week.

As they are often kept in a lender's portfolio rather than sold to investors, rates on ARMs vary more widely from lender to lender than do fixed-rate mortgages. In contrast to Freddie's survey data, a different observation of offered rates for 5/1 ARMs -- one from the Mortgage Bankers Association's weekly applications survey -- declined barely at all, and this observation decreased by just a single basis point (0.01%) to 6.58% in the MBA's latest report.

The ongoing decline in interest rates of late is due to a combination of factors. Investors are increasingly convinced that the Fed's next move -- when it comes -- will be a cut in rates, and positions are being set to get out in front of that possibility. At the same time, recent economic data have been favorable, with softer reports on labor conditions and steadily easing inflation pressures. Technical factors --such as the change in the mix of debt being offered by the Treasury and slow mortgage originations this fall leading a relative dearth of new MBS for investors to absorb -- are also likely playing a role, too.

During active periods in the market, and often when there is considerable momentum, interest rates tend to move above (or below) the level they should be at given economic fundamentals. It seems as though interest rates overshot the mark to the upside in early-mid-fall, and may now be moving rather below where they might ought to be as inventors more fully run to the other side of the see-saw.

Just as a move one way was to the detriment of potential mortgage borrowers, the trend in this direction is to their benefit. What's unclear is how long the downdraft will persist before at least some investors start sneaking back toward the fulcrum, lifting rates again. Until then, borrowers can at least grab mortgage rates that are improved if not actually low.

Mortgage rates still seem to be easing as we write this. We'll see if they can continue the trend after the Fed meeting next week. Until then, slightly lower mortgage rates should be in the market over the next few days.

Each week in HSH's MarketTrends newsletter, we track and discuss economic conditions that affect mortgage rates and their impact on housing markets and consumers. Read the most recent edition of MarketTrends or subscribe for email delivery.