Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) for the week ending August 17 shows that the 30-year fixed-rate mortgage (FRM) averaged 7.09%, up from last week when it averaged 6.96%, reaching its highest level in more than 20 years.
A year ago at this time, the 30-year FRM averaged nearly 2% lower than today’s current rate, averaging 5.13%.
“The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” said Sam Khater, Freddie Mac’s Chief Economist. “The last time the 30-year fixed-rate mortgage exceeded 7% was last November. Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”
Also this week, the 15-year FRM averaged 6.46%, up from last week when it averaged 6.34%. A year ago at this time, the 15-year FRM averaged 4.55%.
“Despite still high prices and elevated interest rates, July’s retail sales data showed consumer spending continues to increase solidly as demand is being boosted by high wage growth,” noted Realtor.com Economist Jiayi Xu. “While this robust data might alleviate worries about an imminent recession, it could give rise to concerns that interest rates might stay elevated for an extended period. Meanwhile, it is worth noting that the Fed is moving cautiously to ensure that the effects of earlier rate hikes are fully revealed. As a result, the Fed may opt to take another ‘wait-and-see’ strategy in the upcoming FOMC meeting, which may help potentially mitigate the recent upward trajectory of mortgage rates.”
As a result of rates exceeding the 7% mark, the Mortgage Bankers Association (MBA) reported overall mortgage application volume fell 0.8% from one week earlier. The MBA’s Refinance Index decreased 2% from the previous week, and was 35% lower than the same week just one year ago. The seasonally adjusted Purchase Index decreased 0.2% from one week earlier, while the unadjusted Purchase Index decreased 2% compared with the previous week, and was 26% lower than the same week one year ago.
“Mortgage application activity continued to decline last week, as mortgage rates reached their highest levels since last October,” said MBA President and CEO Robert D. Broeksmit, CMB. “These higher rates continue to keep many prospective buyers on the sidelines. On the bright side, we have seen a slight uptick in government purchase applications, as well demand for ARM products, which could indicate that some buyers remain active in their homebuying search despite higher rates.”
The MBA reported the FHA share of total applications increased slightly to 13.8% from 13.6% the week prior, while the VA share of total applications remained unchanged at 11.8% from the week prior. The USDA share of total applications remained unchanged at 0.4% from the week prior. The refinance share of mortgage activity decreased to 28.6% of total applications, down slightly from 28.7% reported the previous week. The adjustable-rate mortgage (ARM) share of activity rose to 7% of total applications.
The U.S. Bureau of Labor Statistics (BLS) reports that total nonfarm payroll employment rose by 187,000 in July 2023, and the unemployment rate changed little at 3.5%, with job gains occurring in healthcare, social assistance, financial activities, and wholesale trade. Both the unemployment rate, at 3.5%, and the number of unemployed persons, at 5.8 million, changed little in July. The unemployment rate has ranged from 3.4% to 3.7% since March 2022.
“The most recent labor market data indicates that households remain in a favorable economic position, which should provide a nice boost for housing demand,” noted Xu. “However, mortgage rates remain close to the highs seen in the past two decades, and offset benefits stemming from declining home listing or selling prices. Unlike existing homeowners who could leverage near-record high home equity to reduce the size of mortgage loans, first-time home buyers are facing much more challenging market conditions. In fact, the homeownership rate among householders under 35 dropped from 39.1% in the second quarter of 2022 to 38.5% in the second quarter of 2023.”