The 30-year fixed mortgage rate continued its upward trajectory for the third consecutive week, rising to 6.96%, according to Freddie Mac.
Since the last FOMC meeting in July, all eyes have been fixed on Thursday’s Consumer Price Index release. Another rate hike in September would move the target federal funds rate to its highest level since March 2001.
According to Lawrence Yun, chief economist and senior vice president of research at NAR, “mortgage rates are likely to be past their peak and on the way downward.” Yun was pleased to see deceleration in the rent component, which contributed to pulling down the key core CPI in July.
Freddie Mac’s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year fixed rate averaged 6.96% as of August 10, up from last week’s 6.90%. By contrast, the 30-year fixed-rate mortgage was at 5.22% a year ago at this time. The 15-year fixed-rate mortgage also rose this week to 6.34%, up 9 basis points from the prior week.
Other mortgage rate indices showed higher rates on Thursday morning:
HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.99% on Wednesday, compared to 7.02% the previous week. At Mortgage News Daily on Wednesday, the 30-year fixed rate for conventional loans was at 7.05%, down 8 basis points from the previous week.
“For the third straight week, mortgage rates continued creeping up and are now just shy of 7%,” said Sam Khater, Freddie Mac’s chief economist. “There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again. However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”
The economy, indeed, remains on strong footing. In spite of higher prices, consumer spending remains strong and consumer confidence has hit a two-year high. Job growth has slowed but wages are still rising and the unemployment rate is low. The second quarter GDP growth exceeded expectations but manufacturing indices continue to show a slowdown.
The economy remains strong for the real estate sector
According to George Ratiu, chief economist at Keeping Current Matters, real estate markets have benefited from more people gaining jobs and better paychecks this year.
“While sales of existing homes have been lagging, the challenge comes mainly from too many buyers chasing not enough available properties,” said Ratiu. “Considering that prices have been rising over the past six months and mortgage rates have been pegged above 6.5% since May of this year, the 4.2 million annual sales pace is a highlight of solid demand.”
Additionally, economists have observed a rebound in new home sales this year, with buyers seeking to leverage new construction options and any competitive builder incentives.
When rates were around 7% in late October and November of 2022, demand for housing slowed down significantly, said Bright MLS Chief Economist Lisa Sturtevant. However, demand bounced back after the winter holiday, yielding a surprisingly strong spring housing market.
Ratiu predicts that borrowing costs will stay high as long as financial markets are dreading the next Fed’s meeting. At the moment, the spread between the 30-year fixed rate mortgage and the 10-year Treasury is significant — It hovers around 300 basis points, a level rarely seen in the past 50 years. Ratiu analyzes that without the elevated risk premium and with a spread closer to a historical average of 172 basis points, today’s 30-year fixed mortgage rate would be around 5.7%.
Historically, mortgage rates tend to start cooling once inflation abates. There is typically a six-to-eight-month lag. If inflation maintains its current trajectory, homebuyers can expect to see rates slide back toward 6% in the Fall, concluded Ratiu.