June 17, 2024

Mortgage rates fall, support 7%

Washington, DC

US mortgage rates fell this week, retreating 7% as inflation slows ahead of the Federal Reserve’s rate decision meeting next week.

The average 30-year fixed-rate mortgage was 6.78% in the week ended July 20, down from 6.96% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed rate was 5.54%.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit.

“As inflation slows, mortgage rates eased this week,” said Sam Khater, Freddie Mac’s chief economist. “Still, the continued shortage of previously for-sale homes is a bane for homebuyers looking to take advantage of falling rates. On the other hand, homebuilders have an advantage in today’s market, and incoming data shows that homebuilder sentiment continues to increase.”

Mortgage rates were above 5% for every week except one during the past year and even went as high as 7.08%, which was last reached in November. Rates were cooling and sat below 6.5% for most of the spring. But in May, rates began to move higher as uncertainty over the debt ceiling grew and interest rates remained elevated as economic data showed that inflation was stronger than expected.

And while June’s inflation data was generally positive, investors’ attention is now focused on the upcoming two-day Fed meeting, which ends on Wednesday.

“Although inflation has slowed, the level is well above the 2% target and investors expect the Fed to raise interest rates to reach this target,” said Hannah Jones, economic data analyst at Realtor.com.

Although the Fed does not directly set the interest rates that borrowers pay on mortgages, its actions affect them. Mortgage rates typically track the yield on 10-year US Treasuries, which move based on a combination of expectations about the Fed’s actions, what the Fed actually does and investor reactions. When Treasury yields rise, so do mortgage rates; when they go down, mortgage rates usually follow.

“As markets prepare for next week’s FOMC meeting and the likely interest rate hike that could result, strong employment data and cooling inflation suggest the economy’s progress toward stability is on track,” Jones said.

But as a result, Jones said, mortgage rates are likely to remain elevated for the time being.

Mortgage rates have hovered in the 6% to 7% range for the past 10 months and buyers are looking for rates to cool, as economists predict, in the second part of this year.

“Although house prices have fallen slightly nationally, the cost of borrowing still means little relief for hopeful homebuyers,” Jones said.

Existing home sales have declined due to a shortage of available homes, with homeowners downsizing with ultra-low interest rates that they’ve bought or refinanced over the past few years.

“Many homeowners feel ‘locked in’ at their current mortgage rate and therefore are choosing not to list their home for sale,” said Jones. “As a result, after more than a year of new listings falling behind the previous year’s pace, the number of homes for sale has been below last year’s levels for the past four weeks.”

Buyers are facing a tough summer housing market with still high home prices, rising mortgage rates and little inventory to choose from.

“Current market dynamics are likely to continue until affordability and inventory gains are realized,” Jones said.

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