Fixed-rate mortgages (FRMs) fell sharply this week, plummeting from last week’s average of 5.70% to 5.30% for the week ending July 7, 2022, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS). A year ago at this time, the 30-year FRM averaged 2.90%.
“The Freddie Mac fixed rate for a 30-year loan took a sharp drop this week, falling to 5.30% and offsetting some of the significant rate increases of May and June amid rising recession concerns,” said Realtor.com Senior Economic Research Analyst Joel Berner. “The 40-basis point fall from last week comes on the heels of the recent volatility in the 10-year Treasury yield, which dropped below 2.8% in the first week of July, and rebounded to 2.9% Wednesday after spending most of June above 3%. Continued fears of a bear market have driven investors into safer, longer-term bonds, driving up the price of the 10-year note and pushing its yield below that of the two-year Treasury. This inversion might sound ominous, especially in the midst of sustained inflation that both markets and the Fed agree will likely require more Fed Funds rate hikes to tame. Economists and policy makers will watch closely to see whether these market conditions will lead to increases in the unemployment rate or decreases in production that characterize a recession.”
While rates dipped this week, the Mortgage Bankers Association (MBA) reported overall mortgage app volume fell 5.4% week-over-week (for the week ending July 1, 2022). And despite the dip in mortgage rates, refinances continue to fall, as the overall share of refis fell to 29.6% of total applications, down slightly from 30.3% the previous week.
“Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance."
Freddie Mac also reported the 15-year FRM averaging 4.45% with an average 0.8 point, down from last week when it averaged 4.83%. A year ago at this time, the 15-year FRM averaged 2.20%. Also, the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.19% with an average 0.4 point, down from last week when it averaged 4.50%. A year ago at this time, the five-year ARM averaged 2.52%.
“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise,” said Sam Khater, Freddie Mac’s Chief Economist. “While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown.”
However, despite the dip in rates, Americans are growing increasingly pessimistic about the housing market, as Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased 3.4 points in June to 64.8, its second-lowest reading in a decade. The GSE surveyed consumers who expressed pessimism regarding today’s homebuying conditions, with only 20% of respondents reporting it’s a “good time” to buy a home, while the percentage of consumers who believe it’s a “good time” to sell fell from 76% to 68% this month.
“Prospective homebuyers who have been waiting through 24 consecutive months of year-over-year listing price growth of more than 8.5% may be well-positioned to make a purchase soon if current trends continue,” said Berner. “Mortgage rate stabilization could allow them to lock in a lower monthly payment and take advantage of current increases in the number of homes for sale. In June, active listings increased by 18.7% over last year, the largest annual growth in Realtor.com data history. With more homes on the market, sellers are being forced to compete on prices: 14.9% of listings nationwide had their price reduced last month, the highest rate since before the pandemic began. Though the cost of financing a home remains high relative to recent years, buyers will have more chances to find homes in their price range as the undersupplied and overheated housing market starts to cool.”