Homebuyers are embracing mortgage rates dipping closer and closer to 6%. Rates fell for the fifth week in a row as inflation continues to ease.
The 30-year fixed-rate mortgage averaged 6.27% in the week ending April 13, down slightly from 6.28% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5%.
“Incoming data suggest inflation remains well above the desired level but showing signs of deceleration,” said Sam Khater, Freddie Mac’s chief economist. “These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
The economy continues to give off some mixed signals, but as long as inflation is cooling, it is good for mortgage rates.
The average rate dropped lower this week as bond yields bounced back from last week’s lows following economic data including last Friday’s jobs report that signaled a moderating, but still relatively strong job market, said Danielle Hale, Realtor.com chief economist.
This week’s inflation data, based on the March Consumer Price Index, left plenty of room for interpretation, she said.
“On the one hand, the fact that inflation is still running at more than twice the target level, and core inflation — which includes goods and services, excluding volatile food and energy — saw an uptick to 5.6% in March, highlights that the Fed still has more to do and may need to lift short-term rates again at its early May meeting,” said Hale.
“On the other hand, overall inflation slowed more notably, and even core inflation on a month-to-month basis eased somewhat, a sign that the Fed’s tightening is having the desired effect,” she added. “Even if the Fed needs to raise short-term rates a bit higher, we are very likely nearing the end of the tightening cycle.”
The Fed does not set the interest rates that borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
“As long as the economy continues to see progress on inflation, that should help keep mortgage rates at the lower end of the 6% to 7% range that we’ve seen over the past few months,” Hale said. “However, any surprises in the data will likely lead to some volatility in that range.”
Even before the recent easing in mortgage rates, buyers and sellers registered some improvement in sentiment toward housing with higher levels of pending sales.
Recent drops in rates have brought in some buyers, and mortgage applications were up last week from the week before, according to the Mortgage Bankers Association.
“Prospective homebuyers responded to lower rates last week, leading to an 8% jump in applications to buy a home,” said Bob Broeksmit, MBA president and CEO. “The likelihood of even lower rates in the months ahead should lead to increased demand, despite recent signs of a slowing economy and tighter financial conditions.”
As long as the current dip in mortgage rates can be sustained, buyers will be on the hunt. That may pull more homeowners into the market as sellers, said Hale.
“Despite the huge shifts in market momentum, home sellers can count on the usual seasonal trends tipping the scales a bit further in their favor while home shoppers should expect a fair amount of competition that should ease as we move later into the year,” she said.