According to the latest survey from Freddie Mac, mortgage rates have increased this week following three weeks of declines. Data from Freddie Mac released Thursday reveals that the 30-year fixed-rate mortgage averaged 6.71% in the week ending June 29, up from 6.67% the previous week. This is a significant increase from 5.70% recorded a year ago. Mortgage rates have remained above 5% for most of the past year, reaching as high as 7.08% in November.
Sam Khater, the chief economist at Freddie Mac, commented on the impact of these increasing rates on homebuyers. Despite affordability challenges, new home sales have experienced a resurgence, surpassing the resale market due to a slightly higher supply of new construction. This increased demand has led to price stabilization and consistent growth in recent months.
The average mortgage rate is based on Freddie Mac’s analysis of mortgage applications received from numerous lenders nationwide. The survey focuses on borrowers who have made a 20% down payment and possess excellent credit.
The US housing market has experienced significant fluctuations in the last two years. Initially, home sales and prices soared during the post-pandemic recovery. However, as mortgage rates surged, closings declined, and prices started to normalize.
In recent weeks, mortgage rates have slightly decreased. The 30-year fixed-rate mortgage averaged 6.67% in the week ending June 22.
Inflation focus
Investors closely monitor Federal Reserve Chairman Powell’s comments on rate hikes. As Jiayi Xu, an economist with Realtor.com, highlighted, the Fed’s projection of a 50 basis points increase in policy rates by the end of 2023 indicates its focus on the robust labor market and potential future restrictions. Although this may exert near-term upward pressure on interest rates, including mortgage rates, Xu anticipates a gradual decline that could bring rates close to 6.0% by the end of the year.
Although the Fed doesn’t directly set the interest rates for mortgages, its decisions indirectly influence them. Mortgage rates generally track the yield on 10-year US Treasuries, which fluctuate based on a combination of market expectations, Federal Reserve actions, and investor responses. When Treasury yields rise, so do mortgage rates; when yields fall, mortgage rates tend to follow suit.
Homebuyer headwinds
As rates have cooled off in recent weeks, there has been an increase in mortgage applications, according to the Mortgage Bankers Association (MBA). Joel Kan, MBA’s Vice President and Deputy Chief Economist, noted that purchase applications have risen for three consecutive weeks, reaching the highest level since early May. However, they remain more than 20% lower than the same period last year. New home sales have primarily driven the surge in purchase activity as buyers seek alternatives to the limited inventory of existing homes.
Kan also highlighted the impact of the housing supply shortage on existing-home sales. The scarcity of homes for sale, combined with homeowners holding onto their lower-rate mortgages, has hindered the existing-home sales market. Despite the recent decline in mortgage rates, buyer affordability worsened in May due to climbing rates. The national median monthly payment for purchase loan applicants increased 2.5% from April to $2,165, representing a 14.1% increase compared to one year ago.
In addition to high mortgage rates and housing prices, first-time home buyers face the challenge of a shortage of affordable housing. However, Jiayi Xu mentioned that builders are recognizing this market need and making efforts to address it through new construction projects, particularly within lower price tiers. Consequently, the proportion of new homes sold at prices below $300,000 is increasing, reaching approximately 17% of total sales in May, the highest share since December 2021.
Despite these positive developments, the shortage of affordable homes remains a pressing issue, as severe inventory constraints persist at the most affordable price points.
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