US Mortgage Rates Could Slip Lower in May

 

Mortgage rates have space to decline in May as the end of this cycle of Federal Reserve rate rises approaches.

Mortgage rates for this year may have already peaked in March. They may progressively decline as unemployment grows, employers become less generous with wage increases, and inflation falls.

That’s the point of view of nerds who think about it all day so you don’t have to. Economic forecasters for Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors are specifically mentioned. All three organizations expect that the average 30-year fixed-rate mortgage rate will fall for the remainder of this year and into the first quarter of 2024.

Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point.

 

“Mortgage rates slipping down to under 6% looks very likely towards the year’s end,” the NAR’s chief economist, Lawrence Yun, wrote in an April blog post.

Take note of the phrase “year’s end.” Rates are unlikely to fall in May, but they may fall somewhat. Unless the inflation rate unexpectedly rises — which is possible but unlikely — mortgage rates will most likely be lower at the end of May than at the end of April. They could then continue to decrease until 2024.

What the other forecasters say

In its April economic and housing outlook, Fannie Mae predicted a quarter-point Fed rate rise on May 3, followed by a 0.25% rate decrease in the last three months of 2023, “given our ongoing expectation for a modest recession and significant weakening of the labor market.”

According to Fannie Mae’s April prediction, the economy will lose jobs for the next year and a half, through the end of 2024. It predicts that total economic output will fall from current quarter (the second) to the first quarter of 2024.

The Mortgage Bankers Association’s April economic prediction is less pessimistic than Fannie’s. It implies that the economy will contract in this and the following quarters before rebounding in the fourth quarter.

The NAR predicts that the economy will keep growing, accompanied by modest increases in the unemployment rate.

As for the Federal Reserve, the central bank has raised the short-term federal funds rate by 4.75 percentage points since early 2022, and mortgage rates have risen more than 3 percentage points. The Fed is expected to raise the federal funds rate again on May 3, by a quarter of a percentage point. Investors expect it to be the last or next-to-last increase in this round of rate hikes. By the end of April, the expected increase already had been included in mortgage rates.

What happened in April

We projected at the end of March that lenders would tighten their lending requirements, and that, paired with residual inflation, 30-year mortgage rates would rise in April.

That’s exactly what occurred. The 30-year fixed-rate mortgage averaged 6.56% in the last week of March, and 6.63% in the last week of April, according to NerdWallet’s daily rates survey. It increased from 6.32% to 6.43% in Freddie Mac’s weekly poll over the same time period. The two surveys use distinct techniques and are frequently within a quarter-point of one another.

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