Mortgage rates plunged by 24 basis points last week, averaging 5.30%, Freddie Mac reported Thursday.
Freddie’s Primary Mortgage Market Survey (PMMS) found that the 30-year fixed-rate mortgage (FRM) averaged 5.30%. A year ago at this time, the 30-year FRM averaged 2.80%.
“Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices, increased recession risk, and declining consumer confidence take a toll on homebuyers,” said Sam Khater, Freddie Mac’s Chief Economist.
“It’s clear that over the past two years, the combination of the pandemic, record low mortgage rates, and the opportunity to work remotely spurred greater demand. Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes.”
The data comes on the heels of a 75 basis point rate hike from the Fed, the second in two months.
Recession fears are adding to a dip in homebuyer demand spurned on by soaring prices and rising interest rates. The U.S. saw its GDP drop for a second consecutive quarter this week which, by one metric, means the economy has entered a recession.
Michael Fratantoni, chief economist and senior vice president of research and industry technology at the Mortgage Bankers Association, told NBC to expect a flip from a seller’s market to a buyer’s market, but not a crash.
“What that means on the ground is that for a home seller, they’re going to have less negotiating power, and a home buyer will have more,” he said. “But really, we’re just returning to a more typical market than an extremely overheated market.”
The housing market is historically tied up in inflation fights that lead to recession.
“The most frequent way we enter into recession is the Fed raises rates to fight inflation. The leading indicator for this type of recession is housing,” Bill McBride, author of the economics blog Calculated Risk, told Fortune.
“It [housing] is not the target, but it [housing] is essentially the target.”
Additional findings from Thursday’s report:
- 15-year fixed-rate mortgage averaged 4.58% with an average 0.8 point.
- A year ago at this time, the 15-year FRM averaged 2.10%.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.29% with an average 0.3 point.
- A year ago at this time, the 5-year ARM averaged 2.45%