Mortgage Rates Dip Below 7%, Refinances in Slight Uptick, Industry Reaction to the Fed’s Latest Rate Hike

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On the Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 6.95% as of Nov. 3, down from last week when it averaged 7.08%. The 15-year fixed-rate mortgage averaged 6.29%, down from last week when it averaged 6.36%.

And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.95%, down from last week when it averaged 5.96%.

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“Mortgage rates continue to hover around 7%, as the dynamics of a once-hot housing market have faded considerably,” said Sam Khater, Freddie Mac’s chief economist.

“Unsure buyers navigating an unpredictable landscape keeps demand declining while other potential buyers remain sidelined from an affordability standpoint. Yesterday’s interest rate hike by the Federal Reserve will certainly inject additional lead into the heels of the housing market.”

Mortgage applications were in decline for the sixth straight week, although refinance applications recorded a slight uptick.

The Mortgage Bankers Association’s Market Composite Index fell by 0.5% percent on a seasonally adjusted basis, with the Purchase Index down by 1% and the Refinance Index inching up by 0.2% -- although the latter was also 85% lower than the same week one year ago.

Joel Kan, MBA’s vice president and deputy chief economist, observed that since most homeowners are locked into significantly lower rates, refinance applications are far below where they were in the previous year.

“The refinance share of applications was 28.6% – the fifth straight week below 30%,” he said.

On The Policy Front

Yesterday, the Federal Reserve announced its fourth consecutive rate hike of 9.75%. In a press statement, the central bank said that its policymaking Federal Open Market Committee “anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

However, the Fed also noted that it “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.”

Reaction within the housing sector to the Fed’s action was cautious.

“Real estate markets have been impacted by higher rates for several months and we expect sales and price declines to continue into 2023,” said Ruben Gonzalez, chief economist at Keller Williams.

“Most homeowners have mortgage rates that are half of the current 30-year rate and as a result listings have slowed along with sales. First-time buyers still face the prospect of home prices which have risen 40% since 2019 and now mortgage rates over 7%.

As the Fed continues to combat inflation, the housing market will continue to slow as one of the most interest rate-sensitive industries. Homeowners’ equity levels are high because of the rapid appreciation, and mortgage default rates remain near all-time lows as markets cool.

Lawrence Yun, chief economist at the National Association of Realtors, noted, “Even with the Federal Reserve raising its short-term fed funds rate by another large amount, longer-term interest rates look to move only slightly.

The mortgage market has already priced in the latest Fed move. Still, mortgage rates are near 20-year highs, and that hurts home buyers. Once inflation is contained, mortgage rates will start to drift lower. It may be another year or two before that happens.”

MBA’s Senior Vice President and Chief Economist Mike Fratantoni responded to the Fed’s latest rate hike by stating, “The financial markets correctly anticipated that the Federal Reserve would increase the federal funds rate by another 75 basis points at its November meeting.

With inflation still running far too high, and the job market remaining strong, MBA expects the Fed to increase rates by another 75 basis points before holding them steady throughout 2023.”

Fratantoni added, “Mortgage rates remain above 7%, which has caused refinance activity to effectively stop and home purchase activity to slow markedly. The combination of elevated mortgage rates and steep home-price growth over the past few years has greatly reduced affordability.

The volatility seen in mortgage rates should subside once inflation begins to slow and the peak rate for this hiking cycle comes into view.”

Anthony B. Sanders, chief economist at Artesia Economics, quipped, “Markets are getting stranger than the Paul Pelosi hammer attack.” Sanders also pointed out the financial markets’ response to the Fed’s action, stating, “The S&P 500 index tanked -2.35% after Powell and the Fed failed to pivot.”

On The Homebuying Front

New data from Redfin (NASDAQ:RDFN) has found nearly one-quarter (24.2%) of homebuyers nationwide looked to move to a different metro area in the third quarter, a record high.

“With a recession looming and household expenses high, many people can’t afford to buy a home in an expensive area and/or want to save money in case of an emergency, which makes relocating somewhere more affordable an attractive option,” said Redfin Economics Research Lead Chen Zhao.

“Migration will likely slow in the coming months because the softening labor market and job losses will push more people to stay put or move in with family, though some may need to relocate for new employment opportunities. Plus, many remote workers who wanted to relocate already have.”

Sacramento, Miami and Las Vegas were the most popular spots for out-of-town homebuyers, as determined by search activity on, while more homebuyers looked to leave San Francisco, Los Angeles, New York, Washington, D.C. and Boston.

On The Homebuilding Front

KB Home (NYSE:KBH) has launched the first all-electric, solar- and battery-powered, microgrid communities in California.

In a press statement, the homebuilder said it has partnered with the U.S. Department of Energy (DOE), SunPower Corp. (NASDAQ:SPWR), the Advanced Power and Energy Program at the University of California, Irvine, Southern California Edison, Schneider Electric and Kia (OTCMKTS:KIMTF) to test the energy-efficient and resilient new homes located at KB Home’s Oak Shade and Durango communities in Menifee, California.

The new homes will be equipped with smart technologies and a backup battery, plus community microgrid connectivity designed to provide a self-supporting energy system that powers a specific neighborhood with a community battery that can operate independently during a grid outage.

Furthermore, all homes will be wired to be smart charger ready and some homes in the communities will be testing bidirectional electric vehicle chargers, which, during a power outage, enables the EV to be another source of energy.

“Working with industry and academic leaders, we plan to explore how these energy-smart connected communities can help protect the environment and turn our homes into their own power centers designed to deliver resiliency while also reducing the overall cost of long-term homeownership,” said Jeffrey Mezger, KB Home’s chairman, president and CEO.