Originally Published: 12 JAN 23 12:02 ET

Updated: 12 JAN 23 12:49 ET

By Anna Bahney, CNN

(CNN) -- Mortgage rates inched down last week, after a slight increase the week before.

The 30-year fixed-rate mortgage averaged 6.33% in the week ending January 12, down from 6.48% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.45%.

"While mortgage rates have resumed their decline, the market remains hypersensitive to rate movements, with purchase demand experiencing large swings relative to small changes in rates," said Sam Khater, Freddie Mac's chief economist.

"Over the last few weeks latent demand has been on display with buyers jumping in and out of the market as rates move," he added.

Mortgage rates rose throughout most of 2022, spurred by the Federal Reserve's unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates dropped in November and December, following data that showed inflation may have finally reached its peak.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less-than-perfect credit will pay more than the average rate.

Inflation continues to improve

New inflation data out on Thursday showed that price increases continued to moderate in December. That's good news for people looking for lower and more stable mortgage rates.

The Mortgage Bankers Association expects mortgage rates to move lower over the course of the year, said Bob Broeksmit, MBA president and CEO, which should bring more homebuyers back into the market.

But in the near term, this see-sawing between 6% and 7% is likely to continue, said George Ratiu, manager of economic research at Realtor.com.

"The Freddie Mac fixed rate for a 30-year loan has been moving up and down in the 6% to 7% range since September 2022 when it crossed the 6% threshold for the first time in 14 years," Ratiu said. "Mortgage rates have mirrored the volatility in the 10-year Treasury, as investors wrangle mixed expectations amid an inflow of new economic numbers."

The Fed does not set the interest rates borrowers pay on mortgages directly. But its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed's actions, what the Fed actually does and investors' reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

All eyes are on the Federal Reserve and its meeting at the end of January and its plans for monetary tightening, with investors and businesses looking for signs that the bank may ease the pace of rate hikes, said Ratiu.

Volatility expected to remain for rates

Home sales fell as rates rose last year. Still-high home prices and interest rates that doubled last year have pushed many people out of the market.

Would-be homebuyers can expect mortgage rates to remain volatile, similar to what we have seen over the past five months, said Ratiu.

That means it will be all the more important for buyers to shop around.

"For buyers who find a home to purchase, shopping for a mortgage with multiple lenders to secure the lowest rate and fees could result not only in a lower monthly payment, but also in tens of thousands of dollars saved over the life of the loan," said Ratiu.