Mortgage rates reversed course this week and headed north of 7% again, following several weeks of decline, according to Freddie Mac.
The average 30-year fixed-rate mortgage was 7.03% for the week ending May 30, according to Freddie Mac’s latest Primary Mortgage Market Survey. That’s an increase from the previous week when it averaged 6.94% and up from 6.79% a year ago.
The average rate for a 15-year mortgage was 6.36%, up from 6.24% last week and up from 6.18% last year.
The increase in borrowing costs comes as interest rate cuts fall further into the distance. The Federal Reserve reiterated its commitment to get inflation closer to its 2% target rate. At its May meeting, the central bank announced it would maintain the federal funds rate range at 5.25% to 5.5%, where rates have held steady since July.
Fed Chair Jerome Powell said it would likely take longer for the central bank to gain confidence that inflation is cooling towards the target rate.
The inflation data registered this year have been higher than the Fed expected. The latest reading of the personal consumption expenditures (PCE) price index, excluding food and energy prices—a key metric the Fed tracks to measure inflation—increased by 3.6% after rising to 2% in the fourth quarter, raising concerns that inflation may be headed in the wrong direction and could spark another rate increase.
“More hawkish commentary about inflation and tepid demand for longer-dated Treasury auctions caused market yields to rise across the board,” Freddie Mac Chief Economist Sam Khater said. “This reality, as well as economic signals that have moved sideways over the last few weeks, have resulted in mortgage rates drifting higher as markets continue to dial back expectations of interest rate cuts.”
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Home sales slump in spring
Home sales dipped in April as homebuyer affordability continued to be affected by high borrowing costs. Pending home sales declined 7.7% compared to last month and are down 7.4% compared to one year ago.
“Pending home sales tend to lead existing home sales by roughly one-to-two months and are a good indicator of market conditions,” Realtor.com Senior Economic Research Analyst Hannah Jones said. “Mortgage rates hovered around 6.8% in March, allowing for an uptick in contract signings. However, mortgage rates climbed from 6.8% to 7.2% in April, dampening buyer enthusiasm.”
In April, new home sales and existing home sales also declined, sliding 4.7% and 1.9% on a monthly basis, respectively, according to Jones. This marks a slowdown in buyer activity amid elevated housing costs. Homeowner affordability isn’t expected to improve much as home prices continue to climb, and mortgage rates remain high, with little indication that they will budge lower this year.
“We are witnessing an important shift in home buying sentiment,” CoreLogic Chief Economist Selma Hepp said. “This time last year, potential homebuyers had the mentality to get into home buying despite high rates and a lack of homes for sale. With little expectation of interest rates going down in the near term, the mindset today is to wait and see.
“Households are taking the headlines in and see rising insurance costs and climate change disruptions contributing to the affordability challenges, and that is also having a negative impact on sentiment,” Hepp continued.
Homebuyers can find the best mortgage rates by shopping around and comparing options. You can visit an online marketplace like Credible to compare rates and choose your loan term.
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Home prices gain in March
Home prices reached a new high in March and are now 6.5% above their level last year, on par with the increase registered in February, according to the latest S&P CoreLogic Case-Shiller national home price index report. San Diego registered the highest year-over-year gain, with an 11.1% increase in March. New York and Cleveland followed in second place, registering an annual growth of 9.2% and 8.8%, respectively.
The annual growth in home prices comes as home buyers struggle with affordability issues caused by high mortgage rates and a lack of housing supply. However, housing inventory is improving, jumping 30.4% in April, but is still roughly 36% lower than pre-pandemic levels.
“The decision to buy a home comes down to a payment-to-paycheck calculation, which is influenced by income, mortgage rates, and house prices,” First American Deputy Chief Economist Odeta Kushi said. “While house prices continue to reach new heights, more supply amid a pullback in demand means the pace of price appreciation has decelerated, and will likely continue to do so if this supply-demand dynamic persists.”
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