Today's Mortgage Rates - 01/17/2025

Rates Higher Again, Should Ease

The upturn in mortgage rates that began last fall continued this week.

Freddie Mac reported today that the average offered interest rate for a conforming 30-year fixed-rate mortgage (FRM) pushed another eleven basis points (0.11%) higher this week. At 7.04%, it is the first crest above the 7% mark since late May 2024.

Average offered rates for 15-year fixed-rate mortgages flared upward more strongly, posting a thirteen basis point (0.13%) increase to 6.27%, the most popular short-term mortgage's highest mark since last June.

A 5/1 ARM might offer a homebuyer a lower-cost alternative to a long-term fixed-rate mortgage, but the difference in rate between 30-year FRMs and 5/1 ARMs narrowed a bit this week. The Mortgage Bankers Association said that the initial fixed interest rate on a hybrid 5/1 ARM rose by twenty basis points (0.20%) to 6.18%. Coupled with the smaller upward move by its long-term fixed-rate cousin, this closed the gap in rate to 86 basis points (0.86%). Though smaller, this may still be considerable enough to entice some winter homebuyers to select an ARM as their choice of financing.

For a $300,000 loan taken at the average rates above, the 5/1 ARM would provide a monthly principal and interest payment that is $170 per month lower than it would be for a the 30-year fixed loan. Over the first five years of the mortgage, this translates into $12,966 in interest savings, and an additional reduction in the outstanding loan balance of more than $2,700.

Interest rates had been moving upward fairly steadily since last week, and this would have likely translated into an even larger uptick in mortgage rates, but a slightly better-than-expected report covering inflation not only helped them to stop rising, but also erased a fair bit of the recent upturn, too.

Data on producer and consumer price changes were both out this week, and the Producer Price Index showed a bit of deceleration in December, coming in at an increase of just 0.2% after a more worrisome 0.4% increase in November. While overall goods prices were higher by 0.6%, it was all related to somewhat firmer energy prices during the month. Services costs were unchanged from November, as were core goods costs. Despite the favorable monthly readings, the overall PPI rose on an annual basis to 3.3%, up from a flat 3% in November. The mixed message on costs (flatter near term, higher long term) failed to cheer investors, and bond yields remained elevated.

The Consumer Price Index for December was released Wednesday, and did encourage financial markets. The overall CPI was higher for December, rising by 0.4%, but as with PPI the increase was related to higher energy costs. Core CPI (a measure that excludes food and energy costs and is thought to better reflect the underlying trend for prices) rose by half as much as the headline figure, with the 0.2% monthly increase the smallest change since July. While overall CPI rose by 0.2% on an annual basis to 2.9%, also the highest figure in five months, annualized core CPI retreated by 0.1% to 3.2%, its lowest level since August, and flatter core CPI inflation buoyed investor moods.

Although it doesn't change the overall issue of inflation still remaining too high for interest rates to decline much, the improvement in core CPI was enough to help eliminate (for now) concerns that the Fed might not only not be lowering interest rates this year, but might actually have to raise them instead to re-corral price pressures. We'll see about that in time, but for now, mortgage rates should have some space to retreat a bit over the next few days.

Each week in HSH's MarketTrends newsletter, we track and discuss economic conditions that affect mortgage rates and their impact on housing markets and consumers. Read the most recent edition of MarketTrends or subscribe for email delivery.