Freddie Mac reported on Thursday that the average weekly rate for a 30-year fixed mortgage decreased slightly to 6.95% from last week’s 6.99%. In contrast, Mortgage News Daily’s daily averages showed rates varying between 6.97% and 7.17% over the past week.
Despite the minor drop, this change is unlikely to significantly impact budget-conscious homebuyers, with substantial rate declines probably not occurring until next year, as the Federal Reserve has indicated only one benchmark rate cut for this year.
A recent study highlights that most homebuyers, particularly first-time buyers, are waiting for a much lower rate before re-entering the market. “For buyers constrained by limited inventory, the current trends in mortgage rates aren’t likely to alleviate the mortgage rate lock-in effect until at least year-end or possibly into 2025,” said Ralph McLaughlin, senior economist at Realtor.com. “Those hoping for a resolution this year might be disappointed.”
Inflation Data and Fed Decisions Impact Homebuyers
Recent inflation data shows some easing in prices. The “core” Consumer Price Index (CPI), excluding food and energy, rose by 0.2% in May, the smallest increase since last June. Overall inflation also decelerated on a year-over-year basis compared to April.
Mortgage rates initially dropped on Wednesday following news of easing inflation but then rose after the Federal Reserve announced that it would keep benchmark rates steady at 5.25% to 5.50%. The Fed now projects just one rate cut for the remainder of the year, two fewer than previously expected.
According to Fannie Mae’s homebuyer sentiment survey in May, only 25% of Americans expect mortgage rates to decrease in the next 12 months, while over 30% anticipate an increase. This challenging market environment has led to a new survey low in consumer confidence. “Many respondents were optimistic at the start of the year that mortgage rates would drop, but that has not materialized,” said Doug Duncan, Fannie Mae’s chief economist. “Current sentiment reflects frustration with the lack of affordability.” Homebuyers generally hope for a trend of declining rates, not just a specific target rate, before they consider returning to the market.
However, there might be relief ahead. Economists at Bank of America Global Research forecast multiple rate cuts over the next two years: four in 2025 and two in 2026, each by 25 basis points, potentially bringing rates to 3.50%-3.75% by 2026. The bank had initially predicted four cuts in 2024 at the end of last year.
Brief Surge in Mortgage Applications
According to the Mortgage Bankers Association (MBA), mortgage financing demand surged by 16% last week, driven by a temporary drop in rates that dipped close to 7%. New mortgage applications rose by 9%, though they remain 12% lower than the same week last year. Refinancing activity saw a 28% increase over the week. “Earlier in the week, lower rates led to a significant rise in refinancing, especially among VA borrowers eager to reduce their rates.”
