Rates Dip But Remain Elevated

Mortgage rates dipped again last week but remain above the dreaded 7% threshold.

Officials at Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 7.12%, down from 7.18%. A year ago at this time, the 30-year FRM averaged 5.89%.

This is the second week of declines but the fourth straight week of 7%-plus rates.

The 15-year fixed-rate mortgage slipped to 6.52% from 6.55%. A year ago, it averaged 5.16%.

“The economy remains buoyant, which is encouraging for consumers. Though while inflation has decelerated, firmer economic data have put upward pressure on mortgage rates which, in the face of affordability challenges, are straining potential homebuyers,”  said Sam Khater, Freddie Mac’s Chief Economist. 

The median U.S. home sale price is up 4.5% YOY. With rates in the 7%s, the typical monthly payment is now $2,612, just $18 below May’s record high. As a result, purchase applications are now at their lowest point in more than two decades.

When will affordability return?

Federal Reserve Chair Jerome Powell has said it’s too soon to tell whether the Central Bank will raise rates again at its meeting this month.

Inflation is moving in the right direction, falling from 9.1% in June 2022 to 3.2% last month, but the fight appears to be far from over. The Fed’s target inflation rate is 2%, and another hike may be on the agenda to get inflation to this number.

Experts don’t expect affordability to improve any time soon, making consumers pessimistic about their homebuying ability. Almost one in five Millennials believe they will never be able to own a home, let alone make a purchase in the near future.

“Many young people don’t have a choice between renting and buying. They’re renting their home because even though rent payments have increased, too, it’s still more affordable than buying in much of the country – and renters don’t need a down payment,” Redfin Chief Economist Daryl Fairweather said.

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