Favorable economic trends have led to mortgage rates continuing the downward trend they have seen over the past few months.
According to HousingWire’s Mortgage Rate Center, the average conforming rate on a 30-year loan was 7.06% on Tuesday, down from 7.11% a week ago. Conforming rates on 15-year loans saw an even bigger drop, dropping from 6.90% to 6.79% in one week.
The data comes on the heels of a slowdown in inflation: The Consumer Price Index (CPI) released last week showed prices for goods and services fell 0.1% from May to June, after rising 3% on an annualized basis, the slowest rate of increase in more than three years.
More good news for the housing and mortgage industry came on Monday through comments from Federal Reserve Chairman Jerome Powell. At an event in Washington, D.C., Powell suggested policymakers won't wait until inflation hits 2% before lowering the benchmark interest rate. The federal funds rate has been in its target range of 5.25% to 5.5% since July 2023.
“If we wait until inflation gets down to 2 percent, we've probably waited too long, because the tightening, or the level of tightening, that we're currently undertaking still has the effect of pushing inflation below 2 percent,” Powell said, according to CNBC.
Analysts see a 93% chance that interest rates will remain on hold after the Fed meets at the end of July, according to CME Group's FedWatch tool, but 100% of analysts expect a rate cut in September.
Logan Mohtashami, principal analyst at HousingWire, believes mortgage rates could fall to 6% if the 10-year Treasury yield continues to fall. The spread between the 10-year and 30-year Treasury yields narrowed to 2.62% last week, down from a recent peak of 3.1% in June 2023.
Mohtashami said that if last year's highest spreads were reflected today, mortgage rates today would be 0.48% higher. Tighter spreads correlate with an increase in applications for home purchase mortgages.
“The last time buying apps growth showed a positive 12-week trend was when mortgage rates hit 6%,” Mohatashami wrote on Saturday. “Buying apps have been positive for four of the past five weeks, yet mortgage rates have not even reached 6%. We are currently operating at an all-time low, so context is key. As the past five weeks have shown, it doesn't take much to move the needle upwards in buying apps.”
Mortgage rates have remained stubbornly above 7% through 2024, home price growth has slowed and supply is growing in many parts of the country.
U.S. home prices rose 5.6% year-over-year in June, marking the sixth consecutive month of slowing annualized price increases, according to data released Tuesday by First American.
Among metro areas analyzed by First American, Anaheim, California, led the way with a 10.2% price increase compared to June 2023. Miami (8.9%), Pittsburgh (6.5%), Las Vegas (6.4%) and San Diego (6.2%) each outpaced the national average price increase.
“Rising mortgage rates continue to lock in rates for homeowners and reduce the affordability of potential first-time homebuyers,” Mark Fleming, chief economist at First American, said in a statement. “The result is a simultaneous decline in demand and an increase in supply, which is constraining price growth. However, housing remains in short supply nationwide, which will likely maintain a floor on home price growth.”
The supply of single-family homes for sale fell slightly last week to 651,000, according to data from Altos Research. That figure is up 38.5% from a year ago but still 32% below the pre-pandemic figure in July 2019. Altos also noted that the percentage of listings that were reduced in price increased to 38.3%.
“With any luck, mortgage rates will ease for the rest of the year, and a sign of recovering demand will be fewer price cuts,” Mike Simonsen, president of Altos Research, wrote Monday. “When people put their homes on the market, they lower the price if there are no buyers. But if buyers start receiving a few new, more affordable mortgage applications, we should see this number plateau and then fall.”