For the second straight week, Freddie Mac’s Primary Mortgage Market Survey (PMMS), an analysis of the 30-year fixed-rate mortgage (FRM), was on the rise, averaging 6.43%, up from last week when it averaged 6.39%. A year ago at this time, the 30-year FRM averaged 5.10%.
This marked the second consecutive week of rates rises, after a five-week run of fixed-rates falling.
Also this week, the 15-year FRM averaged 5.71%, down from last week when it averaged 5.76%. A year ago at this time, the 15-year FRM averaged 4.40%.
“The 30-year fixed-rate mortgage increased modestly for the second straight week, but with the rate of inflation decelerating, rates should gently decline over the course of 2023,” said Sam Khater, Freddie Mac’s Chief Economist. “Incoming data suggest the housing market has stabilized from a sales and house price perspective. The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home.”
However, the rise in rates also led to an increase in overall mortgage application volume, as the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey found that mortgage applications increased an overall 3.7% from a week earlier.
"The Freddie Mac fixed rate for a 30-year mortgage increased for a second week in a row to 6.43% this week,” said Realtor.com Economist Jiayi Xu. “As we enter the typically busy spring season, affordability remains the primary concern in the housing market. Starting May 1st, the Federal Housing Finance Agency will enact changes to fees known as loan-level price adjustments (LLPAs) to tackle housing affordability challenges in the U.S., and bolster the capital at Freddie Mac and Fannie Mae.”
As the spring homebuying season continues, the May 1st implementation of LLPAs may stimulate a sagging market for prospective buyers. LLPAs are fees based on factors such as a borrower’s credit score and the size of their down payment that are charged by Fannie Mae and Freddie Mac at the time of loan origination. While it is technically an upfront fee, most lenders convert it into the interest rate on the mortgage, so borrowers pay it over time.
“Unlike the FHA's recent action that promotes homeownership by reducing insurance premiums to benefit FHA borrowers, who are more likely to be first-time buyers and buyers of color, the new LLPAs subsidize low credit score borrowers by charging more to those with high scores,” explained Xu. “While it still costs more to have a lower credit score, the effective penalty for scores under 680 is now smaller than it was. To offset this, borrowers with scores ranging from 680 to above 780 will likely have to pay slightly more than they did under the previous system, raising concerns about the impact on middle-class home buyers.”
Despite the FHFA’s upcoming LLPAs’ aim to ease housing burdens, the National Association of Realtors (NAR) reports that for the first time since November, pending home sales decreased in March 2023, as per the Association’s Pending Home Sales Index (PHSI). NAR’s PHSI dropped 5.2% in March to a level of 78.9, while year-over-year, pending transactions dropped by 23.2%.
Inventory concerns remain an issue, as Lawrence Yun, NAR Chief Economist, notes, “The lack of housing inventory is a major constraint to rising sales. Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally."
MBA President and CEO Robert D. Broeksmit, CMB added, “Financial markets are anticipating that the Federal Reserve will raise short-term rates at its next meeting, which has pushed Treasury yields and mortgages rates higher in recent weeks. Despite the higher rates, purchase applications increased last week but remained below year-ago levels. High home prices and low supply continue to be obstacles for households wanting to buy a home this spring.”