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  • Writer's pictureRealFacts Editorial Team

Mortgage Rates Trend Downward After Inflation Report


Houses

In a welcome development for homebuyers and homeowners alike, mortgage rates have trended downward, dipping below the critical 7% mark. This shift comes on the heels of encouraging inflation data and a promising update from the Federal Reserve. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.95% for the week ending June 13, a slight decrease from the previous week’s 6.99%. Although this rate is higher than the 6.69% seen during the same week last year, it marks a significant retreat from the nearly two-month period when rates consistently exceeded 7%.


Graph of a primary mortgage market survey

The 15-year fixed-rate mortgage also saw a reduction, averaging 6.17%, down from 6.29% the previous week, though slightly higher than the 6.10% average from a year ago. Mortgage News Daily reported similar trends, with current rates for the 30-year fixed mortgage settling at 6.97% and the 15-year fixed at 6.38%.


Factors Driving the Decline


Graph of experts predicting where mortgage rates are headed

The easing of mortgage rates can be attributed to a combination of positive inflation news and signals from the Federal Reserve. Recent data shows a slowdown in inflation, which has bolstered market confidence. Additionally, the Fed hinted at a potential reduction in the federal funds rate within the year, a move anticipated to further exert downward pressure on mortgage rates.


Greg McBride, chief financial analyst at Bankrate, emphasized the impact of inflation data on mortgage rates. “Better inflation news from the Consumer Price Index and acknowledgment from the Fed of modest progress in inflation will help bring mortgage rates down,” he explained. Melissa Cohn, regional vice president at William Raveis Mortgage, echoed this sentiment, noting that as inflation settles, so will mortgage rates.


However, not all analysts are entirely optimistic. Sam Khater, chief economist at Freddie Mac, pointed out that while overall inflation is decreasing, shelter inflation remains stubbornly high, posing ongoing challenges for housing affordability. “Shelter inflation, which measures rent and homeownership costs, increased, showing that housing affordability continues to be an ongoing impediment for buyers on the house hunt,” Khater stated.


Consumer Response and Market Dynamics


Despite some lingering concerns, consumers are already responding positively to the lower mortgage rates. The Mortgage Bankers Association (MBA) reported a 15.6% increase in mortgage applications for the week ending June 7, compared to the previous week. Refinance applications surged by 28%, while purchase applications climbed by 9%.

Bob Broeksmit, president and CEO of the MBA, noted that this uptick in activity indicates borrowers are seizing the opportunity presented by lower rates. “It’s the first time the index has increased since May, a sign that borrowers are acting on lower rates,” Broeksmit said.


Housing Supply and Market Impact


In addition to lower mortgage rates, an increase in housing supply is contributing to the boost in mortgage applications. Mike Fratantoni, senior vice president and chief economist at the MBA, highlighted that home inventory levels, though still low by historical standards, have risen significantly compared to last year. This increase in available homes is good news for prospective buyers who have been frustrated by the lack of options on the market.

Intercontinental Exchange's recent report supports this view, showing that nearly 90% of U.S. metropolitan areas had more homes for sale in April than a year ago. In some markets, inventory levels have even returned to pre-pandemic figures. While this influx of available homes benefits buyers and sellers, it may pose challenges for landlords and developers, as more renters might opt to purchase homes instead.


The recent downward trend in mortgage rates, spurred by favorable inflation data and Federal Reserve signals, offers a glimmer of hope for the housing market. Consumers are swiftly taking advantage of these lower rates, leading to a surge in mortgage applications. Coupled with an increasing housing supply, this trend could provide much-needed relief for buyers in a market that has been challenging due to high rates and limited inventory. As the year progresses, all eyes will be on the Federal Reserve and broader economic indicators to see if this positive momentum can be sustained.

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