The 30-year fixed-rate mortgage (FRM) continued its seesawing trend, falling for the second consecutive week after increasing for the prior three weeks. For the week of June 15, the 30-year FRM averaged 6.69%, according to Freddie Mac’s Primary Mortgage Market Survey. A year ago at this time, the 30-year FRM averaged 5.78%.
“Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve,” says Sam Khater, Freddie Mac’s chief economist. “As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next.”
High mortgage rates are contributing to the low inventory of for-sale homes in the existing market, as many homeowners who purchased in lower-rate periods are unwilling to give up mortgages under 6%. The lock-in effect has pushed down resale inventory to record lows in the spring, according to Redfin. As a result, buyer competition is elevated in many markets, preventing home prices from falling even as demand cools from the spring selling period.
According to research from Redfin, 91.8% of homeowners with mortgages have an interest rate below 6%. Additionally, 82.4% of homeowners have rates below 5% and 62% have rates below 4%. Just over one-quarter of homeowners who are considering listing their home in the next year would feel more urgency to sell if rates dropped to 5% or below, according to Redfin.
“High mortgage rates are a double whammy because they’re discouraging both buyers and sellers—and they’re discouraging sellers so much that even buyers who are out there are having trouble finding a place to buy,” says Redfin deputy chief economist Taylor Marr. “The lock-in effect is unlikely to go away in the near future. Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further.”
Despite the reluctance of homeowners to list their homes amid high rates, mortgage applications increased 7.2% from one week earlier for the week ending June 9, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. The rise in application activity is the first weekly increase since the week ending May 5.
“Mortgage applications were up over the week but remained well below levels from a year ago,” says Joel Kan, MBA’s vice president and deputy chief economist. “Rates are still more than a percentage point higher than a year ago, and low for-sale inventory continues to constrain home buying activity in many markets.”
Kan says the average loan size on a purchase loan decreased for the third consecutive week as there is more first-time home buyer activity in the purchase market.
“Refinance applications accounted for less than a third of all applications and remained more than 40% behind last year’s pace,” Kan says. “Elevated rates have reduced the benefit of a rate/term refinance for many borrowers and continue to discourage cash-out refinances as borrowers are unwilling to give up their lower rates.”
