Mortgage rates plunged last week, their biggest drop in four decades amid signs that inflation is cooling.

A 30-year fixed-rate mortgage averaged 6.61% for the latest week, down from 7.08% the week before, according to Mortgage Bankers Association. It's the largest weekly decline since 1981. The average rate a year ago was 3.10%.

Mortgages have been rising in tandem with the Federal Reserve's unprecedented seven interest rate hikes this year. The central bank has indicated more increases are likely in 2023 to stifle inflation, which remains at four-decade high. But two reports last week showed the price of goods and services rising slower than expected.

"Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked," Sam Khater, Freddie Mac's chief economist said in a statement. "While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact."

Homebuilder sentiment has been consistently low for some time. October saw declines in new construction and the issuing of building permits, according to the Department of Housing and Urban Administration.