According to data released by Freddie Mac on Thursday, US mortgage rates have risen to their highest level since November, approaching 7%. The average rate for a 30-year fixed-rate mortgage was 6.96% in the week ending July 13, up from 6.81% the previous week. This is a significant increase compared to the rate of 5.51% a year ago. The data is based on mortgage applications received by Freddie Mac from thousands of lenders across the country and includes only borrowers with excellent credit who made a down payment of 20%.
Over the past year, mortgage rates have remained above 5%, with a peak of 7.08% in November. In the spring, rates were generally below 6.5%, but towards the end of May, they started to increase due to uncertainty surrounding the debt ceiling and persistently high inflation. However, the inflation situation has been improving, with the Consumer Price Index decreasing for 12 consecutive months and reaching its lowest level since March 2021.
Sam Khater, Freddie Mac’s chief economist, commented on the inflation trend, stating that while inflation is softening, housing costs remain high due to low inventory. Jiayi Xu, an economist at Realtor.com, added that the slowdown in inflation is expected to continue, especially in the housing market. However, she also mentioned that the labor market remains strong, which could contribute to higher inflation and a potential rate hike later in July.
On the other hand, if the positive inflation data continues, it could provide a basis for the Federal Reserve to pause rate hikes and take a “wait-and-see” approach at the upcoming meeting. This could potentially lead to a more favorable environment for homebuyers in the fall season. Despite rising rates, mortgage applications have increased slightly, particularly for FHA and VA purchases, indicating that the strong job market is encouraging some buyers to proceed with their plans.
However, the high cost of buying a home remains a challenge for many, as mortgage rates and housing prices remain elevated. This has slowed down home purchases and put pressure on home and rental prices. While buyer activity has decreased compared to the frenzy seen during the pandemic, the low supply of homes on the market is expected to persist. Xu predicts a modest 5% drop in existing home inventory for the year as a whole, but new homes continue to be an option, with builders focusing on more affordable price points.
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