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Ongoing Financial Volatility Pushes Mortgage Rates Upward

Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) has found the 30-year fixed-rate mortgage (FRM) averaging 6.57% as of May 25, 2023, up from last week when it averaged 6.39%. A year ago at this time, the 30-year FRM averaged 5.10%.

“The U.S. economy is showing continued resilience which, combined with debt ceiling concerns, led to higher mortgage rates this week,” said Sam Khater, Freddie Mac’s Chief Economist. “Dampened affordability remains an issue for interested homebuyers and homeowners seem unwilling to lose their low rate and put their home on the market. If this predicament continues to limit supply, it could open up an opportunity for builders to help address the country’s housing shortage."

Also this week, the 15-year FRM averaged 5.97%, up from last week when it averaged 5.75%. A year ago at this time, the 15-year FRM averaged 4.31%.

“Although the probability of a default remains low, even the fears and panic related to a potential government default could cause creditors to ask for higher interest rates from the U.S. Treasury, resulting in a significant increase in various borrowing costs, including mortgages,” noted Realtor.com Economist Jiayi Xu. “Resolving the debt impasse sooner rather than later would mitigate potential adverse effects on the housing market, which is already contending with high prices and elevated mortgage rates.

And with the 18-basis-point week-over-week rise in mortgage rates comes news from the Mortgage Bankers Association (MBA) that overall mortgage application volume has tailed off yet again, falling off 4.6% week-over-week as buyers continue to struggle with affordability concerns amid an erratic rate environment.

“Ongoing volatility in the financial markets has pushed mortgage rates higher recently, contributing to weaker activity for purchase and refinance applications,” added MBA President and CEO Robert D. Broeksmit, CMB. “Purchase applications declined for the second consecutive week and remain below year-ago levels. Prospective sellers continue to be reluctant to jump into the market because of still-high mortgage rates that would replace their existing low-rate mortgages.”

As affordability struggles linger, Xu notes that buyers are foregoing their original plans and setting their sights on more affordable options, specifically in the Northeast and Midwest regions.

“High prices and elevated mortgage rates have prompted buyers to seek more affordable options,” commented Xu. “Although the national housing market is experiencing a slow spring, there is growing competition in relatively affordable markets, particularly in the Northeast and Midwest regions. As more and more buyers flock to relatively affordable places, it further reduces the opportunities available for first-time home buyers. While a dip in down payments might relieve a little pressure, it remains a challenging task for first-time buyers who don’t have existing home equity to tap into, as the dollar amount of down payments continues to be significantly larger than pre-pandemic levels. A recent survey conducted by Avail, a Realtor.com company, revealed that a decreasing share of renters considered buying a home, with insufficient savings for a down payment ranking as would-be buyers’ primary concern.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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