Despite Inflation, Mortgage Rates Are Plummeting

SaiArLawKa2 / shutterstock.com
SaiArLawKa2 / shutterstock.com

American markets have been in shambles. Finding good investments or safe places for many people to put their money has been incredibly difficult. For months now, the mortgage rates have been rising as a step to try and curb this rampant inflation, and it has been scaring many people away from buying their own homes.

With this decline in people getting mortgages due to high-interest rates, they are finally going back down.

For the week ending November 17th, average mortgage rates dropped to 6.61%. The week before they were at 7.02%, marking the biggest decline in 41 years. However, just one year ago mortgage rates were at 3.01%, so we still have a long way to go for many consumers to feel comfortable buying a house.

With the Consumer Price Index (CPI) and Producer Price Index (PPI) reporting pricing rising much slower than expected in October, suggestions that inflation is going in the right direction are on the horizon. “While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market,” according to Sam Khater, Freddie Mac’s chief economist. “Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”

The average monthly mortgage rate is based on mortgage applications that Freddie Mac receives from lenders throughout the nation. It also only includes borrowers who put 20% down and who happen to have excellent credit. Those who put less down and who have less than perfect credit will pay more than this average rate.

Rates for the CPI and PPI are also giving indications that the Federal Reserve may make smaller rate hikes in the months ahead, and while the fed doesn’t set the mortgage rates, their actions have a strong influence on them. 10-year treasury bonds are one of the greatest tools to track mortgage rates. The two tend to follow one another incredibly close, and when investors see or expect rate hikes, they are making moves to send yields higher, so mortgage rates rise as a result.

Realtor.com indicated that for those in that 20% down category last week, and were paying that 7.08%, would have a median monthly mortgage payment of $2,280. Had they waited and gotten the latest 6.61% their payment would have dropped to $2,174. While this may not look like a ton of change, that $106 a month adds up to $48,000 across a 30-year mortgage.

Many who have been renting are experiencing the inflation squeeze on their monthly rental payment and are scrambling to buy a house and save money now. Given how steeply the cost of a house and mortgage rates have risen since COVID took the world by storm, many have found themselves priced out of the areas they want to call home. With limited inventory across the country, it becomes even tougher to find a place to call home.

Yet still, many sellers are being forced to drop their prices to combat the steep rise in interest rates. With the ever-changing financial landscape, there are many factors at play here that put sellers in a very tough spot, just as it does their perspective buyers. George Ratiu, Realtor.com’s manager of economic research spoke about the complex process of pricing a house properly in this volatile market.

“On one hand, sellers have been coming to terms with the fact that homes priced for the housing market we experienced when rates were at 3% leave very few buyers able to manage the mortgage payments with today’s rates. On the other hand, buyers may hesitate to move forward with transactions if they find the erratic nature of current mortgage rates disconcerting.”

This perfect storm is finally allowing rates to drop, and as many keep facing ever-increasing rent payments, having a locked rate and a place to call “home” is the best decision they can make.