As the summer progresses, mortgage rates are anticipated to decline further, potentially preventing monthly housing costs from rising excessively. On June 12, daily average mortgage rates dropped to their lowest level in three months following the latest CPI report, which indicated a continued cooling of inflation.
Although the Federal Reserve only forecasted a single interest-rate cut for the year during their June 12 meeting, it is possible they hadn't fully considered the recent inflation data. This might lead to a revision of their projection in the upcoming meeting.
Mortgage Rates Likely to Decline Further Over the Summer
In recent days, mortgage rates have shown volatility. Rates spiked after a strong jobs report last Friday but subsequently dropped. According to Chen Zhao, Redfin’s economic research lead, the latest inflation report is beneficial for homebuyers as it has already led to a decrease in mortgage rates. However, the Fed meeting this week might moderate these declines.
Balancing Act Between Rates and Home Prices
Zhao also cautioned that while lower mortgage rates are favorable, they could stimulate demand more than supply, potentially negating any reduction in home-price growth. This situation might drive prices up, ultimately balancing out the impact on homebuyers' monthly payments. Thus, while rates decrease, the overall effect on monthly housing costs may remain neutral if home prices increase correspondingly.
Current Market Conditions
High costs have currently sidelined some potential homebuyers. Pending home sales have decreased by 3.5% year over year, marking the largest decline in over three months. Redfin’s Homebuyer Demand Index, which measures requests for tours and other buying services from Redfin agents, has dropped 18%, reaching its lowest point since February.
Despite these figures, there is a glimmer of hope: mortgage-purchase applications have risen by 9% week over week. On the selling front, new listings have increased by 7.8% year over year, though they remain below typical springtime levels.
This limited supply is one reason home prices continue to rise despite sluggish demand. The imbalance between supply and demand underscores the complexity of the current housing market..
Indicators of Homebuying Demand and Activity
To further understand the current market conditions, let's examine some key indicators:
- Daily average 30-year fixed mortgage rate: 6.98% as of June 12. This rate has decreased from 7.03% a week earlier and down from a 5-month high of 7.52% five weeks earlier. However, it is still up from 6.94% year-over-year.
- Weekly average 30-year fixed mortgage rate: 6.99% for the week ending June 6. This is slightly down from 7.03% a week earlier and down from a 5-month high of 7.22% a month earlier, but up from 6.71% year-over-year.
- Mortgage-purchase applications (seasonally adjusted): Increased by 9% from a week earlier as of the week ending June 7. Despite this increase, applications are down 12% year-over-year.
- Redfin Homebuyer Demand Index (seasonally adjusted): Down 2% from a month earlier as of the week ending June 9 and down 18% year-over-year. This index measures requests for tours and other homebuying services from Redfin agents.
- Touring activity: Up 28% from the start of the year as of June 9. In contrast, at this time last year, touring activity was up 22% from the start of 2023.
- Google searches for “home for sale”: Unchanged from a month earlier as of June 10.
Future Projections for Mortgage Rates
Looking ahead, the trajectory of mortgage rates and housing costs will depend on several factors, including future inflation data and the Federal Reserve's actions. If mortgage rates continue to drop without a corresponding rise in home prices, homebuyers could benefit from lower monthly payments.
However, if lower rates significantly boost demand without an increase in supply, home prices might climb, offsetting the advantage of reduced mortgage rates.
The coming months will be critical for the housing market. While declining mortgage rates present an opportunity for lower monthly housing costs, the market dynamics of supply and demand will ultimately determine their impact.
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