After recent increases, the mortgage rate for the 30-year fixed loan pulled back this week, giving home shoppers a slight reprieve on borrowing costs. Still, rates remain above 6.5% for the third consecutive week: The 30-year fixed-rate mortgage averaged 6.71% this week, Freddie Mac reports. “While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective home buyers,” says Sam Khater, Freddie Mac’s chief economist.
A newly released report this week from the National Association of REALTORS® and realtor.com® showed that lean housing inventory continues to plague the market and has largely contributed to worsening affordability. Middle-income buyers may have it the worst, with the fewest homes on the market in their price range. “Housing markets are navigating the uncertain waters by balancing solid buyer demand—boosted by a strong job market—with lower affordability,” says George Ratiu, chief economist at Keeping Current Matters, a real estate information portal.
Mortgage rates also are contributing to the affordability conundrum, as rates are considerably higher than a year ago. As rates have moved up, mortgage applications for home purchases have fallen—not just because of reduced purchasing power but also “the ongoing lack of For Sale inventory in the market,” says Joel Kan, deputy chief economist of the Mortgage Bankers Association.
Fed Meets Next Week
The Federal Reserve will meet next week to decide whether to continue to raise its short-term benchmark rate. “While the bill to resolve the debt ceiling standoff offered a noticeable relief to capital markets, concerns linger over the Fed’s next rate decision,” Ratiu says. “Several leading members of the central bank have voiced support for a rate pause this month, giving some investors hope that rate hikes may be over.”
However, inflation continues to hover near 5%, still far from the Fed’s goal to return to the historical norm of 2%. Even if the Fed pauses its rate hikes this month, additional rate increases are likely in the second half of 2023, Ratiu says.
Mortgage rates can be influenced by the Fed’s rate but tend to follow more closely the trajectory of 10-Year Treasury notes. The spread between the 10-year Treasury note and current 30-year mortgage rates remains at an elevated level, so “expect mortgage rates to continue running in the 6% to 7% band for the next few weeks,” Ratiu says.
Freddie Mac reports the following national averages with mortgage rates for the week ending June 8:
- 30-year fixed-rate mortgages: averaged 6.71%, dropping from last week’s 6.79% average. A year ago, 30-year rates averaged 5.23%.
- 15-year fixed-rate mortgages: averaged 6.07%, falling from last week’s 6.18% average. A year ago, 15-year rates averaged 4.38%.