US Mortgage rates have dropped for the second consecutive week, generating enthusiasm among both existing and prospective homeowners. The positive trend can be attributed to a moderate inflation report and the Federal Reserve’s decision to halt interest rate hikes, according to the latest data from Freddie Mac and the Mortgage Bankers Association (MBA).
Freddie Mac’s Primary Mortgage Market Survey reveals that the average rate for a 30-year fixed-rate mortgage fell to 6.69% for the week ending June 15, down from the previous week’s average of 6.71%. Although rates remained higher than last year’s average of 5.78%, the recent decline indicates a shift towards a more favorable lending environment.
Similarly, the average rate for a 15-year mortgage rose slightly to 6.10% from 6.07% the previous week, reflecting a year-on-year increase from 4.81%. Freddie Mac’s Chief Economist, Sam Khater, suggests that mortgage rates are likely to decrease further later this year and into the next as inflation decelerates and the monetary policy tightening cycle reaches its peak, leading to a slowdown in economic growth.
The MBA’s Weekly Mortgage Applications Survey supports the positive sentiment, reporting a notable 7.2% increase in mortgage applications for the week ending June 9, 2023. The Market Composite Index, which measures mortgage loan application volume, rose by the same percentage on a seasonally adjusted basis compared to the prior week. On an unadjusted basis, the index recorded an impressive 18% increase.
Breaking it down, the Refinance Index experienced a 6% boost from the previous week but remains 41% lower than the corresponding period last year. Meanwhile, the seasonally adjusted Purchase Index jumped by 8% from the prior week, signaling a potential resurgence in homebuying activity. However, on an unadjusted basis, the Purchase Index was 27% lower than the same week one year ago.
Joel Kan, MBA’s Vice President and Deputy Chief Economist, highlights the lingering challenges in the housing market. Despite the recent rate decreases, mortgage rates remain more than 1% higher than a year ago, discouraging some potential buyers. Furthermore, limited housing inventory adds additional strain to homebuying activity in numerous markets. Kan also points out that the average loan size for purchase loans has declined for three consecutive weeks, indicating increased engagement from first-time homebuyers.
While refinancing applications increased, many borrowers are reluctant to part ways with their current lower interest rates. Consequently, cash-out refinances have seen limited demand in light of the higher prevailing rates. Looking ahead, industry experts anticipate further rate declines in response to the overall economic landscape. As inflation moderates and the Federal Reserve’s tightening measures peak, mortgage rates are expected to become even more attractive, potentially invigorating the housing market and stimulating homebuying activity.