U.S. mortgage rates fell for the second consecutive week after a rapid rise in June, the latest data from loan mortgage company Freddie Mac shows.
The interest rate on a 30-year fixed-rate mortgage declined to 5.3 percent for the week ending July 6, down from 5.7 percent on June 29, according to
Freddie Mac’s data. In the past two weeks, interest rates declined by over 50 basis points. This followed a 70-point rise from June 1 to June 22.
Freddie Mac attributed the interest rate drop to increasing concerns about a potential recession.
“While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” the company stated.
As interest rates rose, mortgage applications dropped. According to the Mortgage Bankers Association (MBA), mortgage applications declined 5.4 percent for the week ending July 1 compared to the previous week. The refinance index was down 8 percent on a weekly basis and 78 percent compared to the same week in 2021.
The decrease in mortgage rates was due to concerns about a weakening economy and fears of recessionary risks, which kept Treasury yields lower, said Joel Kan, MBA’s associate vice president of Economic and Industry Forecasting, in a July 6
press release.
“Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed,“ Kan said. ”Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance.”
Home Affordability
Affordability remains a big issue.The national median home price rose by 14.8 percent year-over-year in May 2022 to reach $407,600, according to the National Association of Realtors (NAR). This is the highest median price level in 23 years.
By the end of June, the average monthly payment for a 30-year
mortgage hit $2,250 according to Redfin. The calculation is based on a median home price of $430,695 and a 10 percent down payment. About six months prior, a buyer would only have had to pay about $1,470 per month in mortgage payments. At the time, the median price of a house was $382,106 and the interest rate was 3.11 percent.
Speaking to
Fox Business, Redfin chief economist Daryl Fairweather pointed out that higher interest rates are pushing buyers away from the housing market, and sellers are unwilling to drop prices at present. But things could change once the economy begins to weaken.
“We’re not going to see distressed sales, but we could see a decline in prices if the economy is hurt so bad that buyers just can’t afford the high prices that sellers want,” Fairweather said.
