Following a week where the Federal Reserve raised the nominal interest rate by 25 basis points yet again to a range of 5.00% to 5.25%, and First Republic Bank was taken over by the Federal Deposit Insurance Corporation (FDIC) and sold to JPMorgan Chase, the 30-year fixed-rate mortgage (FRM) fell closer to the 6% mark, averaging 6.35%, down four basis points week-over-week. A year ago at this time, the 30-year FRM averaged 5.30%.
This marked the second consecutive week of declines for the 30-year FRM.
“This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year,” said Sam Khater, Freddie Mac’s Chief Economist. “While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023. This should bode well for the trajectory of mortgage rates over the long-term.”
Also this week, the 15-year FRM averaged 5.75%, down slightly from last week when it averaged 5.76%. A year ago at this time, the 15-year FRM averaged 4.48%.
"In light of a strong jobs report last week, April’s CPI data reinforced that we are very likely at the end of the tightening cycle,” noted Realtor.com Economist Jiayi Xu. “In April 2023, the headline CPI climbed by 4.9% year-over-year, slowing for the 10th consecutive month, and hitting its lowest level in two years. The core inflation–which includes goods and services excluding volatile food and energy–was at 5.5%. On a monthly basis, both the headline and core indexes increased 0.4%, in line with forecasts from economists.”
The Bureau of Labor Statistics (BLS) reported last week that total nonfarm payroll employment rose by 253,000 in April, and the unemployment rate changed little at 3.4%, as employment continued to trend upward in professional and business services, health care, leisure and hospitality, and social assistance.
“While downward revisions to prior months were large and may suggest future slowing, the overall picture of the labor market remains one of strength,” said Douglas G. Duncan, Chief Economist at Fannie Mae. “The strong rise in hourly earnings continues to suggest that the labor market will add to inflationary pressures and that the Fed’s tightening of monetary policy still has not significantly slowed the labor market, despite such a slowing being an oft-repeated goal. While the Fed has not stated that they are on ‘pause,’ we don’t expect a change in rates until they have more clarity on the regional banking issues through their regulatory lens. Setting that aside, this report does not change our outlook that the Fed will hold rates constant until late in the year.”
And with the dip in rates came a rebound in mortgage application volume, as the Mortgage Bankers Association (MBA) reported apps rose 6.3% week-over-week, as refinance activity jumped 10% to its highest levels since September 2022.
“Borrowers responded positively to lower mortgage rates last week, with both refinance and purchase applications posting strong gains,” said MBA President and CEO Robert D. Broeksmit, CMB. “The decline in mortgage rates is good news for prospective homebuyers, but housing supply is still too low in many parts of the country. Housing construction has slowed, and some would-be sellers are delaying decisions because of economic uncertainty and an unwillingness to give up their low-rate mortgage.”
Addressing the nation’s housing supply issue, the National Association of Home Builders (NAHB) reported that builders remained cautiously optimistic in April, as limited resale inventory helped to increase demand in the new home market. Single-family builder confidence in April rose one point to 45, according to the NAHB/Wells Fargo Housing Market Index. Currently, one-third of housing inventory is new construction, compared to historical norms of around 10%. More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023. Home builders note that additional declines in mortgage rates (to below 6%) will further boost demand.