Mortgage rates fell to their lowest levels since March, reflecting continued optimism that the pace of inflation is nearing a level that would prompt the Federal Open Market Committee to act.
The 30-year fixed-rate mortgage fell to 6.77% on July 18, down 12 basis points from 6.89% the previous week and down 1 basis point from 6.78% for the same period in 2023, according to Freddie Mac's Primary Mortgage Market Survey.
At the same time, 15-year fixed-rate loans also saw weekly and annual declines, dropping to 6.05% from 6.17% and 6.08%, respectively.
On July 11th, the 10-year Treasury hit a peak of 4.29% and closed that day at 4.19%. As of 11am this morning, the yield was 4.17%.
The 30-year fixed rate was 6.85% at the time, down from 6.936% a week earlier, according to data from the Lender Price product and pricing engine posted on the National Mortgage News website.
Mortgage rates are moving in the right direction, but homebuyers haven't yet responded, with application demand remaining about 5% below levels in the spring, when rates were about where they are now, said Sam Carter, chief economist at Freddie Mac.
“This is not unusual – demand can weaken when interest rates fall, but this apparent contradiction stems from buyers wanting to ensure rates do not fall further before making a purchase,” Carter said in a press release.
The average 30-year fixed-rate mortgage rate was 6.36% as of 11 a.m. Thursday, down 3 basis points from Wednesday and 12 basis points from the previous week's average of 6.48%, according to Zillow's interest rate tracker.
“Homebuyers are feeling some relief as mortgage rates are currently well below the 7% level, and rates could remain below this level if next week's inflation data continues to move in the right direction,” Orfe Dibongai, senior economist at Zillow Home Loans, said in a statement Wednesday night.
The latest data shows inflation is trending downward. “As inflation and inflation expectations fall, the current Fed policy stance could become more restrictive, potentially damaging the labor market that has traditionally supported consumers,” Devengui said.
While nearly all economist respondents to a July Wolters Kluwer survey believe the Fed will cut short-term interest rates in 2024, only a minority said a cut would come in September, pushing the outlook for a cut to the November or December meeting. In a June survey, 9% of respondents said the first rate cut would come at the July meeting, but that dropped to zero the following month.
“With inflation continuing to moderate as it has been for the past three months, multiple Federal Reserve officials have reinforced the consensus view that, as Fed Governor Christopher Waller has stated, 'the time to lower policy rates is approaching,'” Divenghy said. “Treasury yields, and mortgage rates which tend to follow them, could fall further, especially if the labor market shows signs of further easing.”
Fannie Mae reported that annual home price growth slowed to 6.9 percent in the second quarter from an upwardly revised 7.3 percent in the first quarter.
“Higher mortgage rates and continued constraints on homebuying are further limiting homebuyer demand and slowing the pace of home price growth,” Doug Duncan, Fannie Mae's chief economist, said in a press release.
“Meanwhile, the number of homes for sale in many urban areas is increasing, also constraining home price growth. While we expect home price growth to slow further over the coming quarters, the continuing lack of inventory of homes for sale and homebuying challenges remain significant and will likely inhibit mortgage demand and home sales for the time being,” Duncan said.
In the near term, next week's release of personal consumption expenditures, a key metric for the Fed, should prompt investors to adjust their inflation expectations. If PCE rises, mortgage rates will likely rise, too, Devengui said.
The Mortgage Bankers Association said mortgage rates should fall going forward.
“Signs of subsiding inflation and the increasing likelihood that the Federal Reserve will cut interest rates this fall should lead to lower mortgage rates, which will be good news for prospective homebuyers who may be unwilling or unable to jump into the housing market at current prices,” MBA Chairman and CEO Bob Broeksmit said in a Thursday morning statement about the weekly claims survey, which was released the previous day.