Jeff Ostrowski | (TNS) Bankrate.com

The average rate on 30-year fixed mortgages retreated to 7.66% this week, down from 7.69% the previous week, according to Bankrate’s weekly national survey of large lenders.

The slight reprieve could signal a prolonged drop in mortgage rates, says Lawrence Yun, chief economist at the National Association of Realtors (NAR). The average rate on 30-year home loans recently topped 8%, but that’s changing because of a number of factors, including a slowing job market and signs that the Federal Reserve’s ongoing war on inflation is working. Meanwhile, 10-year Treasury yields, an informal benchmark for 30-year mortgage rates, have dropped from 5% to 4.5% in recent days.

“The pivot may have already occurred this week,” Yun said Wednesday during the annual Realtors conference in Anaheim, California. “The bond market has already said, ‘We’re pivoting.’”

At the beginning of November, all eyes were on the Fed. The central bank sets policy that indirectly affects the cost of a mortgage. At the conclusion of its latest meeting on Nov. 1, the Federal Open Markets Committee decided to leave rates unchanged. Now, economists say, it appears that the central bank is done raising rates.

“Based on the weak job number and calming inflation, the bond market is forcing the Federal Reserve to consider lowering interest rates,” said Yun, who expects mortgage rates to fall below 7% in the coming months.

What happened to mortgage rates this week

The 30-year fixed mortgages in this week’s survey had an average total of 0.28 discount and origination points.

Over the past 52 weeks, the benchmark 30-year fixed-rate mortgage has averaged 6.94%. A year ago, the 30-year fixed-rate mortgage was 6.85%. Four weeks ago, that rate was 7.75%. The 30-year fixed-rate average for this week is 1.39 percentage points higher than the 52-week low of 6.27%.

As for other loans:

—The 15-year fixed-rate mortgage was 6.91%, down from 7.04% from a week ago.

—The 5/6 adjustable-rate mortgage (ARM) was 7.47%, unchanged from a week ago.

—The 30-year fixed-rate jumbo mortgage was 7.55%, down from 7.61% a week ago.

How mortgage rates affect home affordability

The national median family income for 2023 is $96,300, according to the U.S. Department of Housing and Urban Development, and the median price of an existing home sold in September 2023 was $394,300, according to the National Association of Realtors. Based on a 20% down payment and a mortgage rate of 7.66%, the monthly payment of $2,240 amounts to 28% of the typical family’s monthly income.

The sharp rise in mortgage rates over the past two years has squeezed affordability and sparked a slowdown in home sales. First-time buyers are especially challenged by this market. Home prices haven’t fallen significantly, and values are unlikely to decline, given the shortage of homes for sale.

“Higher mortgage rates have a dual impact on the housing market: reducing affordability for buyers and strengthening the rate lock-in for sellers,” says Odeta Kushi, deputy chief economist at First American. “The combination of reduced affordability and increased strength of the rate lock-in effect is likely to continue to suppress home sales because you can’t buy what’s not for sale, even if you can afford it.”

Reflecting the affordability squeeze, the median household income for homebuyers jumped to $107,000 in 2023 from $88,000 last year, according to NAR’s 2023 Profile of Home Buyers and Sellers.

Will mortgage rates go down?

Economists expected to see mortgage rates decrease by the end of 2023, but the strength of the U.S. economy has thrown a wrinkle into those predictions. So has the jump in 10-year Treasury yields.

The Mortgage Bankers Association forecasts the 30-year fixed rate to fall to 7.2% by the end of the year — a prediction that’s nearly a full percentage point above its forecast from the prior month.

Mortgage rates are also chained to inflation, a metric the Fed has been moving to control. At its September and November meetings, the central bank opted to keep rates unchanged. While the Fed doesn’t directly set fixed mortgage rates, it does set the tone of the interest-rate environment — and as the central bank has boosted its policy rate from zero in early 2022 to a range of 5.25% to 5.5% now, mortgage rates have followed suit.

“There is room for mortgage rates to fall further,” says Lisa Sturtevant, chief economist at Bright MLS, a listing service in the mid-Atlantic region. “The gap between the 10-year Treasury yield and the 30-year fixed rate mortgage rate is historically around 180 basis points. While the gap has narrowed somewhat, the 30-year mortgage rate remains 280 basis points higher than the bond yield.”

Learn more about where rates could be headed in our November 2023 mortgage rate forecast.

Methodology

The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80%. “Lenders surveyed each week are a mix of lender types — thrifts, credit unions, commercial banks and mortgage lending companies — is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.

(Visit Bankrate online at bankrate.com.)

©2023 Bankrate.com. Distributed by Tribune Content Agency, LLC.