Mortgage rates tick down for the third week in a row

By Anna Bahney, CNN

Washington, DC (CNN) — Mortgage rates ticked lower for the third week in a row as investors absorbed strong signals from the housing industry and last week’s pause on rate hikes by the Federal Reserve after 10 consecutive hikes.

The 30-year fixed-rate mortgage averaged 6.67% in the week ending June 22, down from 6.69% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.81%.

Mortgage rates have remained over 5% for all but one week during the past year and even went as high as 7.08%, last reached in November, but have been coming down since the end of May.

“Mortgage rates slid down again this week but remain elevated compared to this time last year,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Potential home buyers have been watching rates closely and are waiting to come off the sidelines. However, inventory challenges persist as the number of existing homes for sale remains very low. Though, a recent rebound in single-family housing starts is an encouraging development that will hopefully extend through the summer.”

On Thursday, a separate report from the National Association of Realtors showed that housing inventory is at about half of pre-pandemic levels. Earlier this week, the Census Bureau reported that home building surged in May, rising 21.7% from April.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

Stubborn inflation is cooling somewhat

The rate for a 30-year fixed-rate mortgage has been volatile amid lagging economic indicators and the Fed’s recent decisions on rates. But good news for new construction and inflation are helping to bring interest rates down.

“While the headline Consumer Price Index dropped significantly in May to 4%, the core CPI — which includes goods and services excluding volatile food and energy — has not retreated as much as the overall inflation in recent months, creating a troubling situation for policymakers,” said Jiayi Xu, economist at Realtor.com.

“In the coming months, we may see a faster slowdown in inflation because the growth in the shelter index, the largest contributor to inflation growth, has passed its peak and started to trend down in April,” she said.

Meanwhile, last week the Fed opted not to raise its key lending rate, choosing to wait for additional data and see how recent rate increases are influencing price growth and the real economy in an effort to cool inflation to a 2% level.

The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

“As the inflation is well above the 2% target and the labor market is still strong, [the Fed] signaled that the federal funds rate will be half a point higher than previously expected at the end of 2023, which is also half a point higher than the current rate,” Xu said. “In other words, borrowing, including home purchases, will likely remain expensive through the remainder of the year.”

Mortgage rates will stay higher this year

With the potential for additional rate hikes ahead, mortgage rates will remain elevated throughout the remainder of the year, said Xu.

“As a result, affordability will continue to be an important factor in buyers’ home purchasing decisions,” she said.

Home buyers continue to flock to relatively inexpensive markets where homes are listed below the national median price, leading to notable price growth in these otherwise affordable areas, according to a recent report from Realtor.com

“The heightened competition in these markets may worsen the conditions faced by buyers with financial constraints, particularly due to the already limited supply of affordable homes,” said Xu.

New home construction surged in April, a sign of confidence by builders that buyers will be there to snap them up.

“While the rise in new construction is encouraging, there is a pressing need to build homes catering to all income levels,” said Xu.

There is a shortage of nearly 300,000 homes that are affordable to middle-income earners, who are hurt most by the shortage of inventory and low levels of affordability, according to recent research by the National Association of Realtors and Realtor.com.

— CNN’s Alicia Wallace contributed to this report.

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