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The average rate for a 30-year, fixed-rate mortgage dipped slightly as of August 31, according to the latest Freddie Mac survey, although it remains above 7%. So, could this mean that mortgage rates will keep going down?
“Mortgage rates leveled off this week but remain elevated. Despite continued high rates, low inventory is keeping house prices steady,” says Sam Khater, Freddie Mac’s chief economist. “Recent volatility makes it difficult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes.”
Experts are divided on whether we’re on the cusp of a continued rise or drop in mortgage rates. For instance, Realtor.com economist Jiayi Xu expects a gradual decline that could bring rates near 6% by the end of 2023. On the other hand, Orphe Divounguy, senior macroeconomist at Zillow Home Loans, believes economic conditions could push rates higher later in the year.
As homebuyers cope with high mortgage rates, real estate software and data provider Black Knight reported August 31 that the typical mortgage payment is nearing $2,500 per month. In the past two years, the typical monthly payment for a 30-year, fixed-rate mortgage with a 20% down payment has soared 91%. It now sits at $2,423.
What Are the Current Mortgage Rates?
The rate for a 30-year, fixed-rate mortgage averaged 7.18% as of August 31, down from 7.23% the previous week. One year ago at this time, the rate averaged 5.66%.
The average rate for a 15-year, fixed-rate mortgage was 6.55% as of August 31, unchanged from a week earlier. At this time a year ago, the rate averaged 4.98%.
Figures for the weekly mortgage rate survey come from conventional mortgage applications submitted to lenders across the U.S. and then sent to Freddie Mac. The company buys mortgages and packages them as mortgage-backed securities.
Mortgage Applications Spike Despite Higher Rates
Mortgage Bankers Association (MBA) data shows the rate for a 30-year, fixed-rate mortgage remained unchanged (7.31%) during the week ending August 25. However, the number of mortgage applications rose 2.9%. Still, application activity lagged the year-ago level by 27.3%.
The MBA report relies on data separate from Freddie Mac’s survey.
“Treasury yields peaked early in the week and did move lower by the end, which may have spurred some activity,” says Joel Kan, MBA’s vice president and deputy chief economist. “Mortgage applications for home purchases and refinances increased for the first time in five weeks but remained at low levels.”
The yield for 10-year Treasury bonds is closely tied to the rate for 30-year, fixed-rate mortgages. Rates for fixed-rate mortgages tend to hover one to two percentage points above the Treasury yield.
What’s the Outlook for Mortgage Rates?
It’s anyone’s guess as to whether mortgage rates will climb or drop in the near future.
“Higher than expected inflation and jobs data could push rates back up,” said Divounguy in a blog post.
“Rising fiscal deficits in 2023 and beyond could prevent further cooling and keep interest rates, and mortgage rates, elevated,” Divounguy added.
Meanwhile, the MBA expects rates to move downward in the months ahead.
Which way these forecasts go depends, in part, on actions by the Federal Reserve’s rate-setting committee.
Jerome Powell, chairman of the Federal Reserve, indicated at the recent Jackson Hole economic policy symposium that the Fed may not be finished with rate hikes this year. In July, the rate-setting committee bumped up the Fed’s benchmark rate—the federal funds rate—to a range of 5.25% to 5.5%.
The Fed doesn’t determine mortgage rates, but the benchmark interest rate does influence them.
“Although inflation has moved down from its peak—a welcome development—it remains too high,” said Powell. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
The U.S. inflation rate ticked up to 3.2% in July, which is above the Fed’s 2% target.
The rate-setting committee’s next meeting is September 19-20. The CME FedWatch Tool calculates an 89% probability that the Fed committee will not increase the federal funds rate next month.
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See the full article on mortgage interest rates, or, read more Arizona real estate investing news.