Weekly Mortgage Rates Decline, Yet Still Exceed 7%
US mortgage rates experienced a slight decline for the second consecutive week but remain above 7%.
This marks the fourth week in a row that rates have remained above 7%, reflecting ongoing inflationary pressures.
According to data released by Freddie Mac on Thursday, the 30-year fixed-rate mortgage averaged 7.12% for the week ending September 7, down from the previous week’s 7.18%. This is in contrast to a year ago when the 30-year fixed-rate stood at 5.89%, marking the last instance when the weekly average was below 6%.
Freddie Mac derives the average mortgage rate from thousands of lender applications, encompassing borrowers who put down 20% and possess exceptional credit. It is important to note that the data was collected during a shortened holiday week.
Mortgage rates have surged during the Federal Reserve’s ongoing campaign to curb inflation, resulting in home affordability reaching its lowest point in nearly forty years. As financing mortgage costs and home prices continue to rise, purchasing a home has become progressively more expensive.
“Consumer sentiment remains positive, which is encouraging,” stated Freddie Mac’s chief economist, Sam Khater.
However, this is not positive news for inflation, as further drops are required for mortgage rates to follow suit.
Despite a slight easing in inflation, robust economic indicators have maintained elevated mortgage rates throughout the week. Consequently, potential homebuyers find themselves under financial strain, and their purchasing power has diminished.
This combination of limited housing inventory and high costs has restricted prospective homebuyers and resulted in lower home sales compared to the previous year.
Realtor.com’s chief economist, Danielle Hale, anticipates minimal movement in rates for the foreseeable future. Rates remained relatively steady even during the abbreviated Labor Day week. Though the strong economy has kept rates at or above 7%, it is starting to cool down gradually.
“In addition to reduced job openings and slower hiring this summer, recent inflation readings have demonstrated progress,” Hale said in a statement.
Nevertheless, inflation continues to outpace the Federal Reserve’s 2% target. The Personal Consumption Expenditures index released last week for July revealed a 3.3% annual price increase.
To curb inflation and maintain economic stability, the Federal Reserve has raised interest rates. However, as the economy shows signs of resilience, investors in the bond market worry that additional rate hikes may be necessary. The central bank has three policy meetings remaining this year, including one later this month.
The Federal Reserve, or Fed, does not directly set interest rates for mortgage borrowers, but its actions have a significant impact on them. Mortgage rates closely follow the yield on 10-year US Treasuries, which are influenced by a combination of the market’s anticipation of the Fed’s actions, the actual decisions made by the Fed, and investors’ reactions. When Treasury yields rise, mortgage rates also increase, while a decline in Treasury yields usually leads to lower mortgage rates.
Despite recent increases in home prices due to a shortage of inventory, rental prices have been trending downwards. This trend is expected to help push inflation back towards its target in the coming months, according to Hale.
The economy is reaching a turning point, she states. However, until there are signs of a gradual cooling without significant job losses or a recession, known as a “soft landing,” mortgage rate volatility may persist.
With elevated mortgage rates, persistently high home prices, and limited inventory, fewer individuals are purchasing homes. According to the Mortgage Bankers Association, applications for mortgages to buy homes recently fell to a 27-year low.
“The housing market seems to have hit a standstill as we enter the autumn season, with sales activity expected to remain sluggish until housing inventory increases and mortgage rates become more affordable,” commented Bob Broeksmit, President and CEO of the MBA.
However, data from Realtor.com shows an increase in newly-listed homes in August, suggesting that some current homeowners may be ready for a change despite the challenges in the market, says Hale.
Nevertheless, the number of homes available for sale remains historically low, with new listings in August falling behind previous years for the same period.
“This has resulted in unexpectedly fierce competition in housing markets,” added Hale.