Rates Cool Down, Increasing Demand

Mortgage rates broke a month-long upward streak, deflating for the first time in weeks and resulting in a purchase demand boost.

Officials at Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 6.88%, down from the week prior’s 6.94%. A year ago at this time, the 30-year FRM averaged 6.73%. This is the first decline in four weeks.

The 15-year fixed also fell, dropping to 6.22% from 6.26%. A year ago, it averaged 5.95%.

“Evidence that purchase demand remains sensitive to interest rate changes was on display this week, as applications rose for the first time in six weeks in response to lower rates,” said Sam Khater, Freddie Mac’s Chief Economist.

Mortgage loan applications were up nearly 10% from the week prior, driven by purchase activity. Notably, the uptick was driven by a minor drop in rates, showing just how sensitive buyers are to even small movement while affordability is so weak.

“Mortgage rates continue to be one of the biggest hurdles for potential homebuyers looking to enter the market,” Khater added.

President Biden proposed new policies to combat high rates during his Thursday State of the Union address. The White House is pushing for two tax credits, both totaling $10,000 and geared towards increasing homebuying activity.

One is effectively a mortgage rate buydown, which the administration says would reduce payments by the equivalent of a 1.5% rate decrease, while the other is meant to encourage current homeowners to sell their starter homes.

But inventory remains a major roadblock to homeownership that government policy can only go so far to address. Federal Reserve Chairman Jerome Powell recently made a similar point, suggesting stock shortages are outside of the purview of the Central Bank.

“We have longer-run problems with the availability of housing,” Powell said at a press conference. “There hasn’t been enough housing built… [but] these are not things that we have any tools to address.”