The average 30-year fixed-rate mortgage fell four basis points from the week prior to 2.98%, according to data released Thursday by Freddie Mac‘s PMMS. Within the past almost three months, mortgage rates have only peaked above 3% one time.
“Economic growth remains steady and is bolstering more segments of the economy,” said Sam Khater, Freddie Mac’s Chief Economist. “Although low and stable mortgage rates have kept the housing market booming over recent months, a deterioration in affordability and for-sale inventory has led to a market slowdown.”
Borrowers are still shopping at a feverish pace, at least by historic standards. Pending home sales metrics released by the National Association of Realtors on Wednesday revealed pending home sales reached its highest mark for the month of May since 2005, up 8% from the previous month of April. Even Lawrence Yun, NAR’s chief economist, said this came as surprise given the number of would-be buyers getting priced out in numerous markets.
More recently, however, mortgage applications dipped 6.9% last week, according to data from the Mortgage Bankers Association. That almost 7% dip brought application volume to its lowest level in almost 18 months, according to Mike Fratantoni, MBA’s senior vice president and chief economist.
“Mortgage rates were volatile last week, as investors tried to gauge upcoming moves by the Federal Reserve amidst several divergent signals — including rising inflation, mixed job market data, strong consumer spending, and a supply-constrained housing market that has led to rapid home-price growth,” Fratantoni said.
The low-rate environment won’t last forever, and both lenders and servicers need to be able to keep their costs down while managing volume fluctuations once things start to normalize.
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For some economists, rising rates are the better option for counterbalancing the market. The effect of higher mortgage rates, which in late 2018 crested at 5%, also contributed to more stability in housing prices. The solid demographics for home purchasing and historically low mortgage rates — which have been in a downtrend for four decades — have created a housing market where prices are rising too fast, said Logan Mohtashami, lead analyst for HousingWire.
“Even though we have good demographics for housing, we are not seeing a growth in sales that would account for the rate of growth in prices,” said Mohtashami.
According to Mohtashami, once the 10-year yield gets above 1.94%, mortgage rates could finally rise above 3.75%, giving the market enough time to cool down.