Mortgage Rates Fall for Fourth Straight Week Despite Looming Fed Hike

Mortgage rates continued their slow retreat for a fourth consecutive week, mirroring the trajectory of bond yields, although this week's hotter-than-expected inflation print suggests the relief will be short-lived.

The average rate on 30-year fixed home loans decreased to 7.11% for the week ending Nov. 12, down 7 basis points from 7.18% the week before, according to Freddie Mac. For perspective, rates averaged 6.24% one year ago.

"Mortgage rates dropped to their lowest level in seven weeks, a welcome development that gives borrowers greater flexibility as they navigate the current housing market," says Sam Khater, Freddie Mac's chief economist.

A month of falling mortgage rates comes as welcome news for homebuyers, though Realtor.com® economist Jiayi Xu warns that a reversal could come as soon as next week.

The stronger-than-forecast October jobs report showed the labor market holding up well, clearing the way for the Federal Reserve's next federal funds rate hike as part of its mandate to curb inflation.

Fed Governor Christopher Waller warned this week that a larger 50 basis point increase should be considered in December’s Federal Open Market Committee (FOMC) meeting if inflation remains hot.

What will the Fed do?

Shortly after Waller's warning, the October Consumer Price Index report exceeded economists' expectations, pushing the 10-year Treasury yield toward 5%.

A December hike is now essentially priced in, with odds of a 25-basis-point increase topping 93%, according to CME FedWatch. The odds of another quarter-percentage-point hike in January 2027 currently stand at 67%.

"The debate is no longer if the Fed hikes, but how far and how fast," says Xu.

Today's homebuyers find themselves squeezed by both high mortgage rates and high inflation, and Xu contends that inflation is the bigger long-term problem.

"High rates raise monthly payments and shrink the loan a buyer can qualify for, and the recent pullback in pending sales shows how sensitive buyers are," notes the economist. "But persistent high inflation is what keeps the Fed hiking and rates elevated."

Crucially, inflation also erodes households' purchasing power, especially when wages lag consumer prices.

In October, existing-home sales dropped to their lowest level since Aug. 2010, according to the latest data  from the National Association of Realtors®.

(Realtor.com)

Headwinds for buyers

In this economic environment, first-time buyers are hit the hardest because they have no existing equity to use as a cushion, forcing them to save toward a down payment from already-stretched budgets.

"Even if rates ease, living costs rising faster than pay will keep weighing on demand for years," says Xu.

Sellers have responded to cooling buyer demand by pulling back. This week, new listing activity fell 10.3% year over year after six weeks of more incremental declines, according to the latest weekly Realtor.com housing trends report.

"Sellers are discouraged because of how disengaged buyers are," says Realtor.com senior economist Hannah Jones. "The prices buyers are open to are less appealing to sellers than they were when mortgage rates were lower."

How your credit score affects your mortgage

Your credit score plays a role when you apply for a mortgage. A credit score will determine whether you qualify for a mortgage and the interest rate you'll receive. The higher the credit score, the lower the interest rate you'll qualify for.

The credit score you need will vary depending on the type of loan. A score of 620 is a "fair" rating. However, people applying for a Federal Housing Administration loan might be able to get approved with a credit score of 500, which is considered a low score.

Homebuyers with credit scores of 740 or higher are typically considered to be in very good standing and can usually qualify for better rates, which can reduce monthly payments.