In a welcome relief for homebuyers, the US 30-year mortgage rates have dropped for the first time in four weeks, offering a glimmer of hope in an otherwise challenging housing market. This decline comes as a boon for prospective buyers grappling with soaring home prices and a scarcity of available properties on the market.
US 30-Year Mortgage Rates Retraced After Flirting with 7%
According to a statement by Freddie Mac, the average rate for a 30-year fixed loan dropped to 6.78% from 6.96% the previous week, the highest level since November 2022. A year ago, the rate averaged 5.54%. In the meantime, the average rate on 15-year fixed-rate mortgages, also fell this week, slipping to 6.06% from 6.30% last week. A year ago, it averaged 4.75%.
The recent drop in mortgage rates was prompted by a modest easing in the 10-year Treasury yield, which had climbed above 4% two weeks prior, the first time since early March. While rates have been fluctuating around 3.80% this week, the market remains sensitive to any shifts in inflation and Federal Reserve interest rate policies.
Source: Freddie Mac
Lack of Inventory Remains A Challenge for the Housing Market
The lack of housing inventory has become a pressing concern, with existing homeowners reluctant to part ways with their homes, preserving their lower interest rates. This trend has had a detrimental impact on the sales of previously owned homes, which slumped to a five-month low in June, based on data from the National Association of Realtors.
Freddie Mac’s chief economist, Sam Khater, emphasized that the shortage of existing homes for sale is hampering potential buyers’ ability to take advantage of declining mortgage rates. This predicament has had a two-sided effect: while it hinders affordability for buyers, it benefits homebuilders, who are witnessing a surge in confidence. A measure of builder confidence reached its highest level in over a year in July, underscoring the current demand for new construction.
Meanwhile, in the week ending July 14, the latest survey by the Mortgage Bankers Association (MBA) revealed a 1% decline in mortgage applications for home purchases compared to the previous week. Moreover, these applications were 21% lower when compared to the same week from the previous year.
Joel Kan, the deputy chief economist at MBA, remarked that even though mortgage rates were lower last week, there was a decrease in purchase applications. He attributed this decline to the ongoing constraints posed by a shortage of available homes for sale and interest rates that remain significantly higher than they were a year ago.
The key takeaway from the current state of the US housing market is the pressing need for greater housing inventory to meet buyer demand. Until a balance is struck between supply and demand, affordability concerns will persist, making homeownership an elusive dream for many. As potential buyers navigate the market’s challenges, it becomes essential for policymakers, builders, and homeowners to collaborate on solutions that ensure sustainable and accessible housing opportunities for all.