For the week ending July 7, the 30-year fixed-rate mortgage averaged 5.3% according to data released by Freddie Mac. That is down from 5.7% the week before. Even with the 40 basis points drop, it’s still significantly higher than the 2.9% rate from this time last year.
At the start of the new year, rates rose sharply. They hit a high of 5.81% in mid-June but since then economic concerts have pushed them lower.
“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise,” said Sam Khater, Freddie Mac’s chief economist. He went on to say “While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown.”
The drop in rates, along with a 5.4% drop in applications for mortgages for the week ending July 1, reveals a somewhat cooling in the U.S. housing market.
“Mortgage rates decreased for the second week in a row, as growing concerns over an economic slowdown and increased recessionary risks kept Treasury yields lower,” said Joel Kan, Associate Vice President of Economic and Industry Forecasting for the Mortgage Bankers Association.
As inflation takes a large chunk of an American’s income, buyers are finding it harder to buy a home. The cost of a loan has reduced their purchasing power.
In 2021, a buyer who put a 20% down payment on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage had a monthly payment of around $1,200 with an average rate of 2.9%. Today, that same home buyer would pay a little over $1,700 in principal and interest. That is about $500 more every month.
The decline in mortgage rates last week follows recent volatility in the 10-year Treasury yield. In the first week of July, it dropped 2.8% after spending much of June over 3%.
The Federal Reserve does not set the interest rates that borrowers pay on mortgages directly. However, its actions do influence the rates. Mortgage rates typically track 10-year U.S. Treasury bonds. When investors anticipate rate hikes, they will often sell their government bonds. This behavior sends yields higher along with mortgage rates.
“This inversion might sound ominous, especially in the midst of sustained inflation that both markets and the Fed agree will likely require more fed funds rate hikes to tame, but it remains to be seen whether these market conditions will lead to increases in the unemployment rate or decreases in production that characterize a recession,” said Realtor.com’s senior economic research analyst.