Rates for the 30-year mortgage edged past the 5% mark again this week, serving as "a reminder that recent volatility remains persistent," according to Freddie Mac.
The average rate for a 30-year fixed-rate mortgage increased to 5.22% for the week ending Aug. 11, according to Freddie Mac's Primary Mortgage Market Survey. This is an increase from last week when it averaged 4.99%, and is significantly higher than last year when it was 2.87%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) increased to 4.43%. This is up from 4.25% last week and 2.4% last year. Similarly, the 15-year mortgage also increased to 4.59%, up from 4.26% last week and 2.1% last year.
"Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market," Sam Khater, Freddie Mac's chief economist, said. "Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer."
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Housing supply and demand reset underway
The housing market appears to be on the path toward rebalancing – higher borrowing rates and affordability challenges have cooled homebuyer demand. CoreLogic recently predicted that home prices will slow to an annual gain of 5% by May 2023.
The inventory of homes for sale in July increased to levels not seen since mid-2020, according to Realtor.com. The list of homes actively for sale on a typical day in July increased by 30.7% over the past year, the most significant inventory increase in the data's history and higher than last month's growth rate of 18.7%.
Increased inventory and lower buyer demand have led to reduced listing prices, according to the outlet. The share of listed homes with price reductions reached 19% in July, closing in on levels not seen since 2017. Moreover, median home prices retreated from June's record high as the pace of growth moderated.
"With more available properties and less competition, more homeowners are beginning to adjust to the new reality and resorting to price cuts to incentivize buyers," George Ratiu, Realtor.com's manager of economic research, said in a statement. "These shifts point toward a welcome change for buyers who are still in the market. The upcoming fall season may offer an even better window of opportunity, as long as the inventory landscape continues improving, as we've seen in recent months."
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Mortgage rates reacting to conflicting economic data
Mortgage rates have fluctuated in the third quarter of 2022, with the average 30-year fixed-rate swinging from 5.70% at the end of June to 4.99% on Aug. 4, according to Freddie Mac. This occurred amid conflicting economic data and the Fed's aggressive campaign to curb inflation.
The Consumer Price Index (CPI), a measure of inflation, decreased to 8.5% annually in July, according to the latest Bureau of Labor Statistics (BLS) report. On a monthly basis, inflation remained unchanged after rising 1.3% in June.
The price of gasoline fell 7.7% in July, offsetting increased costs in food and shelter, according to the report. The energy index also declined 4.6% over the month, even as electricity costs increased.
Separately, non-farm payroll employment increased by 528,000 in July, according to the latest employment report from the Bureau of Labor Statistics (BLS). During this time, the unemployment rate decreased to 3.5%. The job gains were led by increases in leisure and hospitality, professional and business services and healthcare.
This economic data will impact the Fed's next move on interest rates. The Federal Open Market Committee (FOMC) raised rates at its July meeting by 75 basis points to combat rising inflation, bringing the target range for the federal funds rate to 2.25% to 2.5%. This marked the fourth time in 2022 that the Fed raised rates.
One more round of reports for both employment and inflation will be released before the Federal Reserve meets in September. The data will help the Fed determine how large of an interest rate hike to instate.
"Markets are trying to estimate the magnitude of the next Fed rate hike in September (50 or 75 basis points) and how much higher they may go in the future," according to Zillow.
If you want to take out a mortgage or get a mortgage refinance, using an online marketplace like Credible can help you compare lenders and save money. If you have any questions, you can also contact Credible to speak to a home loan expert.
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