Freddie Mac’s latest Primary Mortgage Market Survey (PMMS), for the week ending July 27, 2023, shows that the 30-year fixed-rate mortgage (FRM) averaged 6.81%, up slightly over last week’s average of 6.78%.
After tumbling 18 basis points last week, the FRM is trending back upward as news of the Fed’s latest rate hike emerged.
“Mortgage rates inched up slightly after a significant decline last week,” said Sam Khater, Freddie Mac’s Chief Economist. “Higher interest rates continue to dampen activity in interest rate-sensitive sectors, such as housing. However, overall U.S. consumer confidence is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July 2023. Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market.”
Also this week, the 15-year FRM averaged 6.11%, up from last week when it averaged 6.06%. A year ago at this time, the 15-year FRM averaged 4.58%.
“Some may be wondering if mortgage rates will trend even higher owing to the Fed’s decision this week to hike its target funds rate by 25 basis points,” explained LendingTree's Senior Economist Jacob Channel. “While this does mean that the target funds rate is now at its highest level in more than two decades, it’s important to keep in mind that while the Fed influences them, it doesn’t directly set mortgage rates. Instead, mortgage rates are more closely tied to the 10-year treasury yield. Owing to this, mortgage rates could rise or fall over the coming weeks, and, even if they do go up, there’s no guarantee that they’ll increase by exactly 25 basis points.”
Fears of a rate hike may have scared some off from home purchases, as the Mortgage Bankers Association (MBA) reported overall mortgage app volume falling 1.8% week-over-week in anticipation of the Fed’s move.
“Applications to buy a home decreased slightly last week as many prospective buyers remain on the sidelines because of ongoing affordability challenges and high mortgage rates,” noted MBA President and CEO Robert D. Broeksmit, CMB. “MBA expects that rates will remain volatile in the coming months but will fall to around 6% by the end of this year.”
The National Association of Home Builders (NAHB) reports that builder confidence was up in July, even as the industry continues to grapple with rates in the 7% range, elevated construction costs, and limited lot availability. Builder confidence in the market for newly built single-family homes in July posted a one-point gain to 56, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)—the seventh straight month that builder confidence has increased, and reaching its highest level recorded since June of last year.
“Some buyers have turned to new construction to secure a home, and builders are responding by picking up the rate of home building,” said Realtor.com Economic Data Analyst Hannah Jones. “A higher level of new construction can help bridge the gap between buyer demand and home supply, making progress on the housing supply shortage that has opened up over the past decade. Both increased housing supply and eventual lower inflation would usher in a healthier housing market with more evenly matched supply and demand, taking some of the upward pressure off prices.”
However, many still cite affordability concerns keeping them on the sidelines as they wait out and seek a cooling of rate, a drop in home prices, a rise in inventory, or combination of all three factors.
“Though mortgage rates could definitely go higher than their current levels, that doesn’t mean that they will,” said Channel. “On the contrary, if inflation continues to cool and the Fed announces an end to their current rate hiking cycle this year, then mortgage rates may start to show more sustained declines before 2024 comes around. Borrowers shouldn’t expect rates to plummet, but closing 2023 with rates in the 6% to 6.5% range—as opposed to 7% or higher—is certainly possible.”