After Three-Week Ascent, Mortgage Rates Slip

After weeks spent climbing toward the 6%-mark, the 30-year fixed-rate mortgage (FRM) began to moderate this week, as Freddie Mac reported in its Primary Mortgage Market Survey (PMMS) the FRM averaging 5.70% with an average 0.9 point, down from last week’s average of 5.81%. A year ago at this time, the 30-year FRM averaged just 2.98%.

“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” said Sam Khater, Freddie Mac’s Chief Economist. “This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”

Following a three-week, 72-basis point ascent amid news the Federal Reserve was pushing the nominal interest rate upward as a means to combat inflation, fixed-rates are seemingly in a cooling phase, and as anticipated, may be the start to bringing normalcy back to the housing market.

“At the midpoint of 2022, housing markets are clearly headed for a reset, as rising supply is blending with cooling demand,” said Realtor.com Manager of Economic Research George Ratiu. “The number of homeowners listing their homes for sales has been growing for two straight months compared with a year ago, bringing more options for homebuyers to choose from. The median home price hit a new record in June, reaching $450,000, a 17% gain from last year. At that price, combined with today’s fixed rate for a 30-year loan, homebuyers are looking at a monthly payment of about $2,100—before adding in taxes, insurance, or fees—more than $790 higher than June of 2021. Not surprisingly, this is taking a toll on transactions, and as properties sit on the market longer, the share of those with price reductions is rising. Looking at the next few months, I expect to see further moderation in transactions, followed by a sharper slowdown in price growth. Buyers and sellers will find themselves on more equal footing, a welcome shift after two years of a severely lopsided market during the pandemic.”

The Mortgage Bankers Association (MBA) reported yesterday that despite mortgage rates still in the upper 5%-range, mortgage application volume rose for the third consecutive week, rising 0.7% week-over-week.

“Overall purchase activity has weakened in recent months due to the quick jump in mortgage rates, high home prices, and growing economic uncertainty,” notes Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Purchase applications were essentially flat last week, but were supported by a 6% increase in government loan applications. The average purchase loan amount declined to $413,500, which highlights an ongoing downward trend seen since it hit a record $460,000 in March 2022.”

Also this week, Freddie Mac reported the 15-year FRM at 4.83% with an average 0.9 point, down from last week when it averaged 4.92%. A year ago at this time, the 15-year FRM averaged 2.26%. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.50% with an average 0.3 point, up from last week when it averaged 4.41%. A year ago at this time, the 5-year ARM averaged 2.54 percent.

“With the drumbeat of a possible recession growing louder, investors have been seeking safer assets, driving bond yields lower again this week,” added Ratiu. “Rising prices are eating into consumers’ paychecks, leaving many Americans with less money for discretionary spending. In addition, with inflation outpacing pay raises, most workers are seeing their income fall behind, further straining the finances of buyers who are also facing higher borrowing costs.