Mortgage rates declined again this week following the Federal Reserve‘s recent pause on monetary tightening. However, rates on home loans remain at elevated levels compared to last year and that pause looks temporary.
What should we expect from the summer home-buying season?
The 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 6.67% as of June 22, down from last week’s 6.69%. To illustrate, the 30-year was at 5.81% a year ago at this time.
Other indexes also show rates declining.
The 30-year fixed rate for conventional loans was 6.90% at Mortgage News Daily on Thursday morning, down seven basis points from the previous week. HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.67% on Wednesday, compared to 6.71% the previous week.
“Potential homebuyers have been watching rates closely and are waiting to come off the sidelines,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “However, inventory challenges persist as the number of existing homes for sale remains very low. Though, a recent rebound in single-family housing starts is an encouraging development that will hopefully extend through the summer.”
Altos Research data showed just 451,000 single-family homes on the market as of June 16, compared to 950,000 in June 2019.
According to the National Home Builders Association, June was the sixth straight month of increased builder confidence. It’s also the first time sentiment levels surpassed the midpoint of 50 (out of 100) since July 2022. In June, the score was 55.
“This summer’s housing market shows signs of normalizing in the wake of an unprecedented period,” George Ratiu, chief economist of Keeping Current Matters, said in a statement.
“The unique real estate circumstances of the 2020-22 period—government-mandated quarantines, remote work, massive fiscal and monetary easing—could be better characterized as “unicorn years,” not easily repeatable. Any comparisons to those years may cast a shadow over the current market. At the same time, a return toward historical trends is a welcome move in the right direction.”
Per Ratiu’s estimates, the current buyer of a median-price home has a monthly mortgage payment of $2,300, up $220 compared to a year ago. However, many of last year’s buyers saw mortgage payments increase by $1,000 from the prior year due to higher prices and surging rates.
“The difference in monthly payments is becoming less dramatic than in 2022,” Ratiu said.
Monetary policy
Investors are focusing on the second half of the year, anticipating further monetary tightening as Fed Chairman Jerome Powell set expectations of additional rate hikes in his testimony in Congress on Wednesday.
“Chairman Powell made clear today that the pause at this month’s meeting was most likely temporary,” Marty Green, principal at the law firm for residential mortgage lenders Polunsky Beitel Green, said in a statement.
“Inflation concerns continue to be at the forefront. One benefit in telegraphing a potential increase in rates at future meetings is that it dampens or eliminates the hope of possible decreases in the fed funds rate for the remainder of 2023, which some market participants continued to harbor.”
Realtor.com economist Jiayi Xu said, “With the potential for additional rate hikes ahead, mortgage rates will remain elevated throughout the remainder of the year.”
“As a result, affordability will continue to be an important factor in buyers’ home purchasing decisions,” Xu said in a statement.
