Mortgage rates drop for sixth week, falling to 6.27%

Mortgage rates in the U.S. fell for a sixth straight week, hitting a roughly three-month low.

The average for a 30-year, fixed loan was 6.27%, down from 6.31% the previous week, Freddie Mac said in a statement Thursday.

Borrowing costs are down more than 80 basis points since early November. Though that has spurred more applications for home loans in the past few weeks, it hasn’t been enough to get the market moving again. Instead of jumping in, both buyers and sellers are holding back, concerned about the economy and wary of where rates and prices may head in the coming year.

Purchases of existing U.S. homes decreased for a 10th straight month in November, sliding to the second-weakest annual pace since 2010, the National Association of Realtors reported Wednesday.

“Rates have declined significantly over the past six weeks, which is helpful for potential homebuyers,” Sam Khater, Freddie Mac’s chief economist, said in the statement. “But new data indicates homeowners are hesitant to list their homes.”

The Federal Reserve’s campaign to cool inflation has “some ways to go,” Chair Jerome Powell said recently after the central bank increased its benchmark interest rate. That suggests mortgage costs still may climb further, remaining an affordability hurdle for would-be buyers.

U.S. rent inflation slowing fast in new Fed index

The cooldown in U.S. housing should show up in official inflation data next year, according to a new index that aims to capture changes in rental markets without the usual lag.

Researchers at the Federal Reserve Bank of Cleveland and the Bureau of Labor Statistics built a gauge that’s based only on the leases of tenants who recently moved in and compared it with another that measures the average rents for all tenants.

The results, according to a paper this month, show the newtenant index is now dropping fast, from a peak around 12%. The researchers found that their new-tenant data tends to run ahead of BLS housing measures in the consumer price index by about one year, while for the alltenant measure the gap is about one quarter.

Because of the mechanics of how housing is captured in the official inflation data, there’s typically an extended time lag before real-time market conditions show up in the numbers. That can leave policymakers at the Fed and elsewhere flying somewhat blind when it comes to shelter costs, which are the largest component of the CPI basket.

For that reason, the new index built by the Fed and BLS teams “might be the single most important new inflation indicator” right now, said Joseph Politano at Apricitas Economics.

The researchers cite an ongoing debate over whether the headline inflation numbers should use housing data based on the entire rental market or new tenants only. The former covers the financial experience of a much wider range of people, and the latter is better at capturing the latest shifts in market prices.

Redfin’s last Wall Street bull downgraded

Digital real estate broker Redfin Corp. lost its last remaining Wall Street bull Wednesday.

Truist Securities analyst Naved Khan downgraded the company to hold from buy on growth fears. Khan’s cut marks the first time since the company’s initial public offering in 2017 that the stock has no buy-equivalent ratings from analysts, according to data compiled by Bloomberg. Khan slashed the stock’s price target to $5.50 from $10.

Khan notes that the stock has bounced off its lows in early November, but it still remains down 87% for the year. The shares were up 3.3% as of 10:49 a.m. in New York on Wednesday amid a broader stock market rally.

“With this move up, we believe the stock has shaken off the concerns around liquidity that we had believed were unwarranted,” Khan wrote. But the analyst sees near-term catalysts as “lacking,” given that its “business would still have to endure headwinds from housing slowdown, particularly in 1H23.”

Existing U.S. home sales fell for the 10th straight month in November, extending a record decline as rising mortgage interest rates stymie activity.

“While Redfin has taken numerous steps (e.g., head count reduction, elimination of homebuyer refund) to improve profitability in 2023 amid macro headwinds, we note that adverse changes in operating environment (e.g., rates, demand) could still weigh on execution against these targets,” Khan wrote.

Redfin did not immediately respond to a request for comment.