US’ Mortgage Rates Increase as Home Price Growth Slows

Buying a home became a little more expensive this week, as interest rates crept closer to 7%. According to a fresh prognosis, respite may arrive later this year.

According to Freddie Mac, the average 30-year fixed mortgage rate rose to 6.81% this week, up from 6.78% the previous week. Rates rose in lockstep with the 10-year Treasury yield as markets reacted to the Federal Reserve’s quarter-point rate hike this week, which sent short-term rates to their highest level in more than 20 years.

The hike adds to the unending affordability issues that homebuyers must deal with and exacerbates inventory issues, but softer rates may be on the way.

“With consumer price inflation calming to near-target levels, mortgage rates appear to have peaked,” Lawrence Yun, chief economist of the National Association of Realtors (NAR), said in a statement on pending home sales on Thursday. “Given the ongoing job growth, any meaningful drop in mortgage rates could result in a rush of buyers later this year and into next.”

First-time buyers, often the most rate sensitive in the market, took a step back as rates ticked up.

The volume of mortgage purchase applications fell 3% from one week earlier on a seasonally adjusted basis to the lowest level in almost a month, according to the Mortgage Bankers Association (MBA) poll for the week ending July 21. Purchase demand was 23% lower overall than the same period last year.

The drop was caused in part by a 10% decrease in applications for FHA-backed house loans, which are popular among middle-income and entry-level purchasers.

“Many borrowers remain on the sidelines given current rates and persistent affordability challenges,” MBA deputy chief economist Joel Kan said in a statement.

Home prices aren’t exactly helping the affordability equation either.

According to a separate Altos Research survey, the median price of single-family homes was $450,000 for the week ending July 24. This is the same as it was last week and a year ago. The median price of a new listing remained constant from the previous year.

“Again, this is yet another signal that, despite affordability challenges for so much of the country, there are enough buyers at these prices and mortgage rates that home prices will not fall in 2023,” Altos Research CEO Mike Simonsen stated in a blog post.

A lack of inventory is also preventing prices from decreasing. And this is a direct result of rising mortgage rates, since many homeowners are delaying selling their homes because they do not want to give up their present low mortgage rate.

Altos Research predicted at the start of the year that inventory would reach 600,000 by the end of 2023. The company has recently reduced that figure by one-third to 400,000.


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