Mortgage rates are dropping for the first time in months

Mortgage rates are dropping for the first time in months.

Mortgage rates fell slightly last week for the first time in more than two months amid the Federal Reserve's ongoing fight against inflation, according to data released Wednesday by the Mortgage Bankers Association (MBA).

The weekly MBA survey shows the 30-year fixed-rate mortgage rate fell to 7.06 percent, down from 7.16 the previous week, and applications fell for the sixth consecutive week. However, rates remained near their highest level in two decades.

The share of adjustable mortgages, which has risen recently with rising mortgage rates, declined from the previous week to 11.8% of total applications.

Despite a slight decline in the 30-year flat rate, mortgage rates are much higher than last year and continue to challenge buyers and the housing market.

"Regardless of the ARM loan rate, rates for all other types of loans were three percentage points higher than they were a year ago," Joel Kahn, MBA vice president and deputy chief economist said in a statement.

"These higher rates continue to pressure both buying and refinancing activity and have added to the ongoing affordability challenges affecting the broader housing market, as evidenced by deteriorating trends in housing starts and home sales," Kahn added.

Meanwhile, the share of refinancing activity remained low as homeowners remained reluctant to risk losing their low rates.

"With most homeowners locked in at significantly lower rates, applications for refinancing continued to run below last year's pace by more than 80 percent, while the share of applications refinancing was 28.6 percent - the fifth week in a row below 30 percent," Kahn said. ".

The drop in mortgage rates comes after months of steady increases fueled by sharp interest rate hikes by the Federal Reserve to curb rising inflation. Experts expect the Fed to raise interest rates again during Wednesday's central bank meeting.

The Fed's battle with inflation has led to a significant lull in the previously hot housing market.

Increases in recent weeks have led to a record slowdown in home prices and a drop in pending sales. The number of homes under contract fell for the fourth consecutive month in September, falling 10.2 percent from August, according to data from the National Association of Realtors (NAR).

NAR Chief Economist Lawrence Yun expects high rates to continue.

"The new normal for mortgage rates may be around 7% for some time," Yoon said in a statement last week.

"On a $300,000 loan, that translates to a typical monthly mortgage payment of about $2,000, compared to $1,265 just one year ago — a difference of more than $700 a month. Only when inflation is tamed will mortgage rates drop and buying power boosted for homes to buyers," Yoon said.