Mortgage Rates This Week – December 6, 2023

In stark contrast to September and October, mortgage rates continue to fall and are now almost 1.5% below the peak, continuing to hit multi-month lows. The 30-year fixed rate now sits in the mid-6’s at 6.625% without points for borrowers with excellent credit and a 25% down payment. The rate drop can be attributed to various factors, including economic data showing a slowing economy and cooling inflation, expectations that the Fed will be forced to cut rates next spring and a tightening in the spread between mortgage rates and the 10-year treasury rate.

This week is all about employment data, focusing mainly on the BLS (Bureau of Labor Statistics) Jobs Report due out on Friday. Today we got the ADP Employment report for November which showed that there were only 103,000 jobs created, below market expectations of 130,000. October’s report was also revised lower from an already weak 113,000 to 106,000. A recent trend shift is occurring in the leisure and hospitality sector which showed a loss of 7,000 jobs. This is the first negative number since COVID in a sector that has been growing rapidly, and been a major force in job growth and wage inflation over the past couple of years.

Another sign of slowing job growth was the JOLTS report showing job openings declining from 9.35M to 8.7M, well below what the market was expecting. Similar to the ADP report, Leisure and Hospitality was down 10% from the previous report and is now down 25% year-over-year. A robust jobs market has been a major talking point the Fed has used to justify hiking rates to current levels. If weakness seen in both the JOLTS and ADP report shows up in the BLS report on Friday and the unemployment rate moves into the 4’s, expect to see mortgage rates continue to rally lower.

Moving to the Fed, we continue to hear conflicting comments from members of the Fed on their expectations of future policy. Fed Chair Jerome Powell recently acknowledged a slowdown in inflation but said it would be premature to conclude that we have achieved sufficiently restrictive rate policy or to, speculate when we might cut rates. Additionally we’ve heard Fed President’s Williams and Daly say it will be appropriate to maintain a restrictive stance for quite some time to fully bring inflation back down to their goal.

Conversely Fed Governor Waller made comments that gave credence to the expectation that the Fed will start lowering rates next spring, saying that the Fed’s monetary policy is currently well-positioned to slow the economy and get inflation back to 2%. He also said if the decline in inflation continues for several more months, we could start lowering the policy rate. Based on current rate movement it’s clear that the markets agree with Governor Waller’s stance and are brushing off more hawkish comments from other Fed members.

Supporting the narrative that inflation will continue to cool was the Apartment List Rental Data showing that new rents fell 0.9% last month and are down 1.1% year over year. Given that shelter costs weigh heavily in both CPI and PCE, the continued decline in rents seen over the past several months should benefit future inflation readings, helping us get closer to the Fed’s 2% inflation target.

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE) showed inflation was flat in October which was below estimates. Year over year the index decreased from 3.4% to 3.0%. Core inflation came in up 0.2% in October and down from 3.7% to 3.5% year over year, also below estimates. The annualized core rate over the past 6 months is currently at 2.4%, not far from the Fed’s 2.0% target.

(CPI) Consumer Price Index came in cooler than expected and showed overall inflation was flat in October; year over year, inflation dropped from 3.7% to 3.2%%. The core rate, which strips out food and energy prices, increased by 0.2% below the expected 0.3%, while year-over-year inflation decreased from 4.1% to 4.0%. Mortgage rates moved significantly lower on the news as the October report was in direct contrast to September’s inflation data, which was hotter than expected and stoked concern that the Fed had more work to do to win the inflation battle. Shelter costs, which comprise 40% of the core index, were a key reason inflation fell below the market expectations as shelter rose 0.3% compared to the 0.65% rise in September. Shelter will continue to help bring down inflation in the coming months, as we’ve been predicting for most of the year.

The Producer Price Index (PPI) also came in much cooler than expected as overall producer inflation decreased by 0.5% in October, well below estimates of 0.1% and the biggest drop since April 2020. Year-over-year inflation fell from 2.2% to 1.3%. Most of the decline came from lower food and energy prices, which are volatile; this was a good sign for long-term inflation as PPI is considered a leading indicator of future consumer inflation.

After the CPI report, the odds of a Fed rate hike in future meetings plummeted. Expectations for a rate hike in January fell from a 30% chance of a rate hike to a 2% chance of a rate cut. The odds for a May rate cut now sit at 85%, and June odds sit at a 100% chance of a rate cut.

Retail sales also showed the first signs of slowing as October sales fell 0.1%, a big shift from the 0.7% increase in September. State sales tax data also indicates slowing sales and less spending, which could indicate the current retail sales data may be revised even lower in the coming months.

Analysis from MBS Highway, a paid service we use to monitor mortgage rates, showed that when the unemployment rate increases by 0.5%, as we just saw rising from 3.4% in April to 3.9% in October, a recession follows within 0-2 months going back to 1970. If this holds and we are headed into a recession, expect mortgage rates to continue lower in 2024.

We’ve seen a surge of new contracts even during a normally time of year as lower rates have spiked buyer demand. Multiple offers are increasing, which is abnormal for this time of year and points to an early buying season when things really start to pick up in January. Success in this environment hinges on swift closings and presenting attractive offers.

To embark on your quest for the lowest possible rate, consider comparing different lenders and collaborating with a company that offers transparent mortgage rates and costs online. Experienced Mortgage Advisors and Loan Officers can guide you through the current market conditions and chart the best course forward.

Current Mortgage Rates This Week for WA, OR, ID, CA, and CO From Sammamish Mortgage
12/06/2023

**Conforming assumptions – $800k Purchase Price, 25% Down, 800+ Credit
**Jumbo assumptions – $1.5MM Purchase Price, 25% Down, 800+ Credit

Washington State mortgage rates

Mortgage rates In Oregon

Mortgage rates in Idaho

Mortgage Rates for Colorado

California Mortgage Rates

National Average Mortgage Rates:

(State-specific rates sourced from Sammamish Mortgage – National Average rates sourced from Zillow)

Consumer Price Index, Consumer Sentiment & Inflation

Without a doubt, the biggest driver of interest rates is inflation. With that in mind, we continue to focus on inflation data and expectations going forward to gauge what we can expect to see interest rates in the coming months. Current inflation is running well above the Fed’s annual target of 2%, pushing the Fed’s hand to raise short-term rates to slow things down. While current numbers remain elevated, we expect a significant reduction in the inflation readings in the coming months as various factors moderate the pace of inflation.

Consumer Price Index (CPI) October = 0.0% – Annual = 3.2%  

Producer Price Index (PPI) October = -0.5% – Annual = 1.3%

Personal Consumption Expenditures (PCE) October = 0.0% – Annual = 3.0% 

Overall, it is difficult to predict what will happen with mortgage rates in the near term. With global economic turmoil, banking issues, inflation, and thus far a far more resilient economy than many expected, trying to predict rates from one day to the next to time a rate lock is almost impossible or at least requires luck. However, looking at a longer time horizon, it’s much easier to see that there is an excellent chance we could see rates move lower from current levels, providing an opportunity for recent and existing buyers to potentially refinance in the future.

Housing Data

The Case Shiller Home Price Index showed that home prices rose 0.7% in September. Home prices have risen substantially since January as the index is on pace for prices to rise 6% this year.  Year-over-year prices are up 2.6% and 1.5% from last June’s peak. The annual number will continue to rise as the price decreases from last summer and fall are replaced, resulting in lower year-over-year comps in future reports. Increased values were seen in all 20 cities reported.

FHFA also released its House Price Index, which measures home appreciation on single-family homes with conforming loan amounts and does not include cash buyers or jumbo loans. The report showed prices higher by 0.6% in September and up 6.1% from a year ago. This is now the eighth month in a row the index has hit record highs.

New Home Sales measuring contracts on new homes for sale fell 5.6% in October. This coincides with rates hitting 8% in October. Given that rates have moved substantially lower since this report, we could see improvements in the data over the next couple of months. The supply of new homes for sale continues to fall below demand at a 1.3-month supply.

Existing Home Sales fell 4% in October to a 3.79M unit annualized pace, which was weaker than expected and likely resulted from rates shooting higher in September and October. We continue to see buyer demand fluctuate with rates, as demand briefly decreases as rates rise and spikes significantly when rates dip. With rates recently decreasing, our company has seen buyer activity increase significantly and reflect better numbers in the coming months. Inventory still remains an issue, with current levels roughly half of what we experienced in 2019. Even with seasonal headwinds and higher rates, homes remained on the market for an average of 23 days, and 66% of homes sold in less than 30 days. Speaking with our Realtor partners, they are seeing a surge of multiple offers on competitively priced homes, which is abnormal for this time of year.

The NAHB Housing Market Index Showed builder confidence dropping 7 points to 33, falling further into contraction. Other metrics were down, including current sales, future expectations, and buyer traffic. Housing starts and Permits continue to show that supply is not keeping up with demand despite increasing supply. Housing starts came in below expectations, rising 2% in October and are down 4% from last year. Building permits rose 1% in October and are also down 4% year over year. Several multi-family projects have been completed recently, helping supply and pushing rental prices lower; however, new project permits are around 3-year lows due to Fed rate hikes. Looking at new home completions, the annual pace of homes hitting the market continues to be around 700,000 units below household formations.

The current data does little to assuage concerns about the limited inventory in the housing market. Existing home values are anticipated to appreciate as demand consistently exceeds supply, particularly for entry-level homes. This trend underscores the necessity for a balanced and sustainable approach to address the persistent supply-demand imbalance in the residential real estate market.

The CoreLogic Home Price Insights report showed prices moving higher by 0.3% in September, setting an all-time high for the fifth month in a row, and prices are now up 4.5% yearly. CoreLogic forecasts that home prices will increase by 0.1% in October and 2.6% over the next 12 months. Based on the first half of the year, the index is on pace to increase 8% in 2023, which blows away even the most optimistic forecasts before the year started.

Black Knight’s Home Price Index hit another all-time high after nine consecutive months of growth, increasing 0.4% in September and 4.3% year over year. National home equity is now near all-time highs from $231,000 to $249,000. Lack of inventory continues to drive prices higher as 95% of major US markets have a decline in homes for sale. Inventory isn’t expected to improve soon as Black Knight also reported that more than 60% of existing mortgage holders have first mortgages with rates below 4%.

Zillow’s September Home Price Index showed that home values declined 0.1% but are up 2.1% compared to last year. This is the first monthly decline in values since earlier in the winter and aligns with seasonal trends as values tend to flatten during the fall and winter months. Zillow forecasts home prices to rise 6% in 2023.

Looking at five of the major home price indexes, we see that the pace of appreciation in 2023 has more than offset the downturn in 2022. If the second half of the year matches what we’ve seen so far, 2023 will have appreciation ranging from 6-8%, depending on which index you look at.

See Current Rates

What the Fed rate hike means for borrowers, savers, and investors

When the Federal Reserve raises interest rates, it affects various aspects of the economy, including the housing market, savings, and investment.

For potential homebuyers, a Fed rate hike typically leads to an increase in mortgage rates in the early stages of a tightening cycle; however, if the market thinks the Fed rate increases will hurt the economy and cause inflation to decrease, mortgage rates can improve when the Fed raises the Fed Funds Rate. It’s important to note that the Fed does not control mortgage rates. Fed rate increases do directly impact credit card rates, car loans, and commercial loans, which are shorter in duration than a typical 30-year fixed mortgage.

For savers, a Fed rate hike may lead to higher returns on savings accounts and certificates of deposit (CDs). In addition, banks and other financial institutions may increase the interest rates they pay to savers to remain competitive, which can benefit savers looking to earn more on their savings.

A Fed rate hike may impact the stock and bond markets for investors. Typically, when interest rates rise, the value of stocks and bonds can fall as investors may shift their money to fixed-income investments with higher returns. However, the impact of a rate hike on the markets can be complex and depends on various factors such as the overall state of the economy, inflation expectations, and global events.

Loan Limits Increased For 2024

Loan limits have increased for 2024. Each county in every state has its loan limit. That said, most counties’ new conforming loan limit is $977,500 for 2023. FHA loan limits are $977,500 for most counties in 2024, though they can be much lower for more inexpensive counties.

Visit our 2024 conforming loan limit pages for Washington State, Oregon, Idaho, California,, and Colorado.

For FHA loan limits for 2024, visit our pages for Washington State, Idaho, Colorado, California and Oregon.

Check out our mortgage loan limit tool for conventional, FHA, and VA loans.

Instant Mortgage Rate Quote

Ready to Apply For a Mortgage?

Do you have questions about rates this week and home loans? Or are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, Colorado & California. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Our programs include the Diamond Homebuyer Program, Cash Buyer Program, and Bridge Loans. Contact us today with any questions you have about mortgages.

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