US Homebuyers Benefit from Sustained Drop in Mortgage Rates
Mortgage rates inching toward 6% have been well-received by homebuyers, as rates experienced a decline for the fifth consecutive week amid cooling inflation.
The 30-year fixed-rate mortgage dropped marginally to 6.27% in the week ending April 13, compared to 6.28% the previous week, according to data released by Freddie Mac on Thursday. In contrast, the 30-year fixed-rate stood at 5% a year ago.
Freddie Mac's chief economist, Sam Khater, stated that the data indicates a deceleration in inflation, albeit still above the desired level. Coupled with tight labor markets, these trends are fostering increased optimism among potential homebuyers as the housing market enters its peak season during spring and summer.
The average mortgage rate is calculated based on mortgage applications Freddie Mac receives from numerous lenders across the nation. The survey includes only borrowers who make a 20% down payment and possess excellent credit.
As inflation cools, the economy continues to emit mixed signals. Nevertheless, cooling inflation is beneficial for mortgage rates.
Danielle Hale, chief economist at Realtor.com, explained that this week's decline in average rates was influenced by bond yields recovering from the previous week's lows, following economic data such as last Friday's jobs report, which demonstrated a moderating but still relatively robust job market.
This week's inflation data, which was derived from the March Consumer Price Index, allowed for various interpretations. According to Hale, on one hand, inflation running at over twice the target level, combined with core inflation (excluding volatile food and energy) rising to 5.6% in March, suggests the Federal Reserve may need to increase short-term rates at its early May meeting. On the other hand, overall and month-to-month core inflation showed signs of slowing down, indicating that the Fed's tightening measures are producing the desired effects.
Although the Federal Reserve does not directly determine the interest rates on mortgages, its actions have a significant influence. Mortgage rates typically follow the yield on 10-year US Treasury bonds, which depend on a mix of expectations about the Fed's actions, the Fed's actual decisions, and investors' responses.
Hale believes that as long as progress continues on the inflation front, mortgage rates should remain at the lower end of the 6% to 7% range seen in recent months. However, unexpected data may cause volatility within that range.
Homebuyers have been capitalizing on lower rates, resulting in increased pending sales even before the recent easing of mortgage rates. Lower rates have also attracted more buyers, with mortgage applications up last week compared to the previous week, according to the Mortgage Bankers Association.
Bob Broeksmit, MBA president and CEO, noted an 8% surge in applications to buy homes last week in response to lower rates. He also mentioned that the prospect of even lower rates in the upcoming months could potentially drive up demand, despite recent indications of a slowing economy and tighter financial conditions.
If the current downward trend in mortgage rates is maintained, buyers will continue to actively search for homes, possibly encouraging more homeowners to enter the market as sellers, added Hale.