Mortgage rates dropped for the second week in a row,
notching the largest decline since December, 2008.
The 30-year fixed-rate mortgage averaged 5.30% in the week
ending July 7, down from 5.70% the week before, according to Freddie Mac. That
is still significantly higher than this time last year when it was 2.90%
Rates rose sharply at the start of the year, hitting a high
of 5.81% in mid-June. But since then, economic concerns have pushed them lower.
The 40 basis point fall offset some of the significant rate increases of May
"Over the last two weeks, the 30-year fixed-rate
mortgage dropped by half a percent, as concerns about a potential recession
continue to rise," said Sam Khater, Freddie Mac's chief economist.
But affording a home still remains a challenge. Mortgage
rates are at their highest levels since the late 2000's and listing prices have
grown by more than 8.5% year-over-year for 24 consecutive months, said Joel
Berner, Realtor.com's senior economic research analyst.
If there's any silver lining for homebuyers, it's that more
homes are hitting the market, he said. In June, active listings increased by
the largest annual growth in the history of Realtor.com's data.
"With more homes on the market, sellers are being
forced to compete on prices," he said. "Though the cost of financing
a home remains high relative to recent years, buyers will have more chances to
find homes in their price range as the undersupplied and overheated housing
market starts to cool."
Higher rates are also tamping down demand among prospective
buyers. Mortgage applications dropped 5.4% in the week ending July 1 from the
week before, according to the Mortgage Bankers Association.
"Rates are still significantly higher than they were a
year ago, which is why applications for home purchases and refinances remain
depressed," said Joel Kan, MBA's associate vice president of economic and
industry forecasting. "Purchase activity is hamstrung by ongoing
affordability challenges and low inventory, and homeowners still have reduced
incentive to apply for a refinance."
Buyers are finding it harder to buy homes as inflation takes
a larger chunk of their income and the cost of borrowing has reduced their purchasing
A year ago, a buyer who put 20% down on a median priced
$390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an
average rate of 2.90% had a monthly mortgage payment of $1,299, according to
calculations from Freddie Mac.
Today, a homeowner buying the same priced house with an
average rate of 5.30% would pay $1,733 a month in principal and interest.
That's $434 more each month.
The decline in mortgage rates this week follows recent
volatility in the 10-year Treasury yield, which dropped below 2.8% in the first
week of July after spending most of June above 3%.
While the Federal Reserve does not set the interest rates
borrowers pay on mortgages directly, its actions influence them. Mortgage rates
tend to track 10-year US Treasury bonds. As investors see or anticipate rate
hikes, they often sell government bonds, which sends yields higher and with it,
In addition, continued fears that we are heading into a bear
market have driven investors into safer, longer-term bonds, said Berner.
"This inversion might sound ominous, especially in the
midst of sustained inflation that both markets and the Fed agree will likely
require more fed funds rate hikes to tame, but it remains to be seen whether
these market conditions will lead to increases in the unemployment rate or
decreases in production that characterize a recession," he said.
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