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TYSONS, Virginia — Mortgage rates inched up again last week, after a slight increase the week before interrupted six straight weeks of falling rates.
The 30-year fixed-rate mortgage averaged 6.48% in the week ending January 5, up from 6.42% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.22%.
Mortgage rates rose throughout most of 2022, spurred by the Federal Reserve's unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates dropped in November and December, following data that showed inflation may have finally reached its peak.
Would-be buyers have little appetite to get into the market now. That's partly because there are few homes available to buy, since most sellers aren't interested in parting with the ultra-low mortgage rates that were available for the past few years.
"Mortgage application activity sunk to a quarter-century low this week as high mortgage rates continue to weaken the housing market," said Sam Khater, Freddie Mac's chief economist. "While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023."
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less-than-perfect credit will pay more than the average rate.
"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," said Khater. "Moreover, if rates continue to decline, borrowers who purchased in the last year will have opportunities to refinance into lower rates."
Mortgage rates ended 2022 holding fairly steady as markets reacted to the ongoing economic uncertainty, said George Ratiu, Realtor.com's manager of economic research. On one hand, he said, there are mounting expectations of a recession. On the other, the incoming economic data shows continued resilience.
"With a Federal Reserve committed to bringing inflation down, investors expect business investments and consumer spending to pull back," said Ratiu. "However, with most Americans still employed and seeing modest pay gains, the pullback in spending has yet to meaningfully materialize."
Job loss is a big part of a recession, and it isn't yet happening on a broad level.
"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," he said. "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."
