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Mortgage Rates Fall After Reaching Two-Decade High

Mortgage rates fell this week from last week’s 21-year high, despite still topping the 7% mark, as Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) for the week ending August 31 found the 30-year fixed-rate mortgage (FRM) at 7.18%, down five basis points from last week’s average of 7.23%.

“Mortgage rates leveled off this week, but remain elevated. Despite continued high rates, low inventory is keeping house prices steady,” said Sam Khater, Freddie Mac’s Chief Economist. “Recent volatility makes it difficult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes.”

A year ago at this time, the 30-year FRM averaged 5.66%.

Also this week, the 15-year FRM averaged 6.55%, unchanged from last week. A year ago at this time, the 15-year FRM averaged 4.98%.

“The Freddie Mac fixed rate for a 30-year mortgage dropped 0.05 percentage points to 7.18% this week, but remained elevated around its 20-year high,” noted Realtor.com Economist Jiayi Xu. “Meanwhile, July’s core Personal Consumption Expenditure (PCE) Price Index, a crucial indicator monitored by the Federal Reserve for monetary policy decisions, jumped slightly from year-ago levels, but grew at a mild monthly rate which is more in line with the Fed’s 2% inflation target. While July's job openings provided new evidence that the labor market is cooling, we still need more robust data points to confidently assert that inflation is moving in the desired direction. Despite mortgage rates hitting 20-year highs, we still expect them to reverse course and trend lower as we gather more solid evidence of inflation improvements in the coming months.”

And despite rates still exceeding the 7% mark, the Mortgage Bankers Association (MBA) reported a week-over-week rise in mortgage application volume, the first time in five weeks there was an uptick in volume. The MBA reported a 2.3% week-over-week rise in volume, as mortgage applications for home purchases and refinances increased for the first time in over a month, but remained at low levels.

“The last full week of August ended on a positive note, with mortgage applications for home purchases and refinances increasing for the first time in five weeks,” said MBA President and CEO Robert D. Broeksmit, CMB. “With mortgage rates near 23-year highs and inventory levels low in most of the country, housing market conditions will remain challenging for home shoppers this fall. MBA expects rates to move lower in the months ahead, which should help improve affordability slightly.”

Affordability remains an issue for buyers, as new report from Redfin found that potential home buyers on a $3,000 monthly budget can afford a home valued at $429,000, assuming a 7.4% mortgage. Over the course of the last year, that same buyer has lost $71,000 in purchasing power year-over-year—meaning last year, they could have afforded a home valued at $500,000 at the average mortgage rate of 5.5% at that time.

“The challenging combination of a 20-year high mortgage rate and constrained housing inventory is creating an unfavorable environment for today’s homebuyers, according to the Realtor.com August Housing Trends report,” said Xu. “With many existing homeowners feeling locked-in and opting to stay on the sidelines, home shoppers are seeing fewer existing homes for sale, leading to heightened competition for limited housing options. While many buyers hold back their purchasing plans, Realtor.com’s 2023 Hottest Zip Codes report suggests that some buyers have adjusted to the higher-rate environment and are moving forward with their home search in higher-priced major metros, likely driven by return-to-office demands. However, it is a much more challenging case for first-time home buyers to make such adjustments as they do not have near-record high home equity to leverage. Fortunately, new homes remain an option for many, as builders are continuing to add homes with a somewhat greater focus on affordable price points.”

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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