Mortgage rates increase, despite inflation cooling: Freddie Mac
High home prices continue to challenge would-be homebuyers
Mortgage rates reached their highest levels since November 2022, according to Freddie Mac's chief economist. (iStock)
The average rate for a 30-year fixed rate mortgage increased to 6.96% for the week ending July 13, up from last week’s average of 6.81%, Freddie Mac reported. Meanwhile, the average rate for a 15-year fixed-rate mortgage increased to 6.30%, up from last week when it averaged 6.24%.
"Mortgage rates increased to their highest level since November 2022, the last time rates broke seven percent," Freddie Mac’s Chief Economist Sam Khater said in a statement. "Incoming data suggest that inflation is softening, falling to its lowest annual rate in more than two years.
"However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand," Khater continued.
In fact, the median U.S. home-sale price increased 1.5% from last year during the four weeks ending July 9, according to data by Redfin. That marked the first increase in nearly five months.
Lower inventory is another challenge that potential homebuyers are facing, Redfin said.
"Prices are rising despite relatively low demand because there are so few homes for sale," Redfin said in its report published July 13. "New listings are down 27% year over year, the biggest drop since the start of the pandemic, and the total number of homes on the market is down 14%, the biggest drop since March 2022. That’s mostly because potential sellers are locked in by low rates; nearly all homeowners have a rate below 6%."
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Cooling inflation may bring down home prices
Inflation increased by 3% year-over-year in June, based on the Consumer Price Index — a common measure of inflation, released by the Bureau of Labor Statistics. That was a drop from its June 2022 high of 9.1%. In addition, inflation decreased from its annual inflation rate of 4% in May.
"This month’s inflation report is likely to bring mortgage rates down a bit from their recent highs," Redfin Economic Research Lead Chen Zhao said in a statement. "It shows that the Fed’s interest-rate hikes are working and ups the chance they’ll only hike rates one more time this year.
"Because elevated mortgage rates are responsible for both of today’s major home buying challenges — high monthly housing payments and low inventory — any decline is welcome news for buyers," Zhao added.
Still, Federal Reserve Chair Jerome Powell in a statement said the central bank would consider two more interest rate hikes. One economist advised against it.
"One couldn't ask for a better report on consumer price inflation," Moody's Analytics Chief Economist Mark Zandi said in a tweet. "Inflation is definitively throttling back, and while today's report overstates the case, there is a strong case that inflation is headed in the right direction. The Fed should rethink the need for more rate hikes."
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Many homebuyers say they have regrets about their purchase
High home prices and mortgage rates had some homeowners thinking they made the wrong decision to purchase a home in 2023, according to a survey by Clever Real Estate.
About 93% of homebuyers said they had regrets about purchasing a home this year, the survey said. More than half (58%) said they thought their home was overpriced, and most had a hard time keeping up with their mortgage payments.
"At the start of 2022, the buyer of a $500,000 home — assuming a 20% down payment and the average rate at the time of 3.1% — was looking at a $1,700 monthly payment (excluding property taxes and insurance)," Keeping Current Matters Chief Economist George Ratiu said last month. "Today, the buyer of a similar-priced home is weighing a $2,500 monthly payment, a significant difference."
Affordability has taken a toll on Americans, according to Redfin’s recent analysis.
"A homebuyer on a $3,000 monthly budget can afford a $450,000 home with today’s average rate," Redfin said in its analysis. "That buyer has lost $30,000 in purchasing power since February, when they could have bought a $480,000 home with that month’s average rate of around 6%. The drop is more extreme when compared to a year ago, when a $3,000 monthly budget would have bought a $510,000 home at a rate of about 5.3%."
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