The average 30-year fixed mortgage rate fell this week to 6.63%, from 6.81% a week ago. Rates on other home loan products were mixed – while some declined, others rose or stayed about the same. Still, this is the first week of retreating rates in 2023, and mortgage rates are expected to continue falling over the course of the year.
Here are the current mortgage interest rates, without discount points unless otherwise noted, as of Jan. 12:
- 30-year fixed: 6.63% (down from 6.81% a week ago).
- 20-year fixed: 6.68% (up from 6.44% a week ago).
- 15-year fixed: 5.95% (down from 5.96% a week ago).
- 10-year fixed: 6.07% (up from 6.01% a week ago).
- 5/1 ARM: 5.51% (up from 5.49% a week ago).
- 7/1 ARM: 5.61% (down from 5.62% a week ago).
- 10/1 ARM: 5.98% (down from 6.02% a week ago).
- 30-year jumbo loans: 6.63% (down from 6.85% a week ago).
- 30-year FHA loans: 5.85% with 0.06 point (down from 5.99% a week ago).
- VA purchase loans: 6% with 0.05 point (down from 6.03% a week ago).
“Mortgage rates fell to near their lowest level since September as recession risk began to weigh more heavily on investors’ minds. A slew of incoming economic data point to falling inflation and a rapidly slowing U.S. economy, which investors suspect will cause the Federal Reserve to pause, or even reverse, their program of interest rate hikes.”
– Orphe Divounguy, senior macroeconomist at Zillow, in a statement
Circumstantial evidence has aligned to bring a drop in mortgage rates: Wage growth is sluggish, market rents are declining and a recession looms on the horizon. Inflation slowed to an annual pace of 6.5%, marking the sixth consecutive month of deceleration, according to the newly released December Consumer Price Index report.
The economy has already begun contracting in the services and manufacturing sectors, and forecasters have their sights on the dreaded inverted yield curve – typically a harbinger that an economic recession is “highly likely,” Divounguy says. “Combined, these signals of waning inflationary pressures and potential economic slowdowns have helped bring mortgage rates down.”
Through the rest of the year, interest rates are expected to continue their decline, according to our 2023 mortgage forecast. The Mortgage Bankers Association has the most bullish predictions, putting the average 30-year fixed mortgage rate at 5.2% by year-end. Nadia Evangelou, director of forecasting at the National Association of Realtors, says rates will stabilize below 6% in the spring and summer. With this most recent inflation report, the declining rates scenario is becoming increasingly likely.
Indicator of the Week: Six Months of Deceleration
Economists, particularly the policymakers at the Federal Reserve, must have breathed a sigh of relief upon seeing the December CPI data. With price increases slowing to a 6.5% annual pace, from 7.1% the month prior, inflation has declined significantly from its peak at 9.1% last summer.
All told, inflation has decelerated for the past six consecutive months, and forecasters believe it will continue falling in the months to come. And they have good reason – asking rents rose by 8.35% in December, their highest annual growth rate in more than 40 years. But more up-to-date data from Zillow shows that market rents have been falling since their peak in February, which will undoubtedly show up in future inflation reports.
“Housing inflation due to rising rents is the one major item still showing acceleration but is soon expected to come down as well,” Lawrence Yun, chief economist at NAR, says in a statement. “Private sector data in recent months have been pointing to near-zero rent growth in some major cities, and robust apartment construction will raise rental vacancy rates.”
Incoming inflation data will continue to shape mortgage rate trends throughout the year. If consumer prices continue to decelerate in the monthly inflation report, interest rates will fall. But the opposite is also true: If inflation data comes in hotter than expected, it could cause mortgage rates to rise. And with the December CPI report pointing to slowing price growth, “the 30-year mortgage rate dropping under 6% is now a distinct possibility,” Yun says.
This could be good news for buyers who have taken a wait-and-see approach to the housing market and even more so for those who had been priced out by high rates and monthly mortgage payments.
“The gate is beginning to open for homebuyers who got shut out in October and November when the rates went above 7%,” Yun continues. “However, there is still a housing shortage and not enough listings.”
Yun’s final point is of particular concern this year. Higher rates have temporarily brought some more balance into the market, but if declining rates bring more buyers back to the table, we could potentially face another supply crunch that spurs competition and keeps home prices elevated. On top of the long-standing issue of housing underproduction, many existing homeowners are reluctant to sell and sacrifice their sub-3% mortgage rates.
Forecasters worry that housing affordability will remain a top concern for 2023. However, with relatively cooler competition among buyers compared with 2020 and 2021, those who are motivated enough to navigate this year’s housing market could be rewarded with falling mortgage rates and more negotiating power.