Mortgage rates inched down to their lowest level since mid-May this week. Rates below 7% are a sliver of good news in a tough housing market—but it will take a lot more to improve buyers’ sour moods.
The average 30-year fixed mortgage rate this week was 6.95%, down 0.04 percentage point from the week prior, according to Freddie Mac’s weekly survey. ”Mortgage rates continued to fall back this week as incoming data suggests the economy is cooling to a more sustainable level of growth,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Declines in mortgage rates can make a big difference for buyers. Applications for home loans jumped last week—albeit from very low levels—as rates pulled back, according to Mortgage Bankers Association data.
“A further decline in mortgage rates, coupled with reports of rising inventory levels in markets across the country, is good news for prospective home buyers this summer,” Mortgage Bankers Association President and CEO Bob Broeksmit in a June 13 note.
Despite the slight drop in rates, the housing market is still feeling the effect of tight monetary conditions. Just ask Federal Reserve Chair Jerome Powell, who mentioned the effects of high interest rates on homebuying in Wednesday’s press conference, noting that they are greatly affecting the housing market.
Advertisement – Scroll to Continue
“Ultimately, the best thing we can do for the housing market is to bring inflation down so that we can bring rates down so that the housing market can continue to normalize,” said Powell.
Lower inflation and target interest rates won’t solve the housing shortage, which existed before the pandemic, Powell said. But the mortgage rate lock-in effect—a term for homeowners’ tendency to keep their homes off the market when current mortgage rates far exceed the rate they secured—won’t be as much of a factor.
For every percentage point that the market rate outstrips a homeowner’s mortgage rate, the likelihood that they will sell drops by about 18%, a March Federal Housing Finance Agency working paper said.
Advertisement – Scroll to Continue
A relatively low supply of homes has kept prices high, with April’s median existing-home sale price just 1.5% off the record high set in June 2022. Still-high mortgage rates add to housing costs for prospective buyers, keeping home sales at relatively low levels.
Pending home sales are down 4% year to date, while closings are down 1%, National Association of Realtors chief economist Lawrence Yun said in an email to Barron’s. “The first half of the year will show no gains from last year,” Yun said, noting that existing-home sales are “still struggling” after falling in 2023 to their lowest level in nearly 30 years. “The key is what’s in store for the second half of the year,” he added. “If inventory growth continues then more home sales can be anticipated.”
Those looking to buy have been waiting for mortgage rates to drop, but are increasingly feeling defeated. In a
survey published last week, 86% of consumers said it was a bad time to buy a home—a new survey high.
Advertisement – Scroll to Continue
“While many respondents expressed optimism at the beginning of the year that mortgage rates would decline, that simply hasn’t happened, and current sentiment reflects pent-up frustration with the overall lack of purchase affordability,” said Doug Duncan, Fannie Mae senior vice president and chief economist in the release. Fannie Mae expects that mortgage rates will average 7% by the end of the year, according to its latest forecast.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com and Amethyst Martinez at amethyst.martinez@dowjones.com
