Quiver Quantitative - In a significant move, U.S. mortgage rates have decreased for the second consecutive week, marking the steepest single week decline since November of the previous year. Freddie Mac reports that the average rate for a 30-year fixed mortgage now stands at 7.5%, a notable reduction from the 7.76% rate observed last week. This easing offers a momentary respite for prospective homebuyers who have been contending with escalating borrowing costs that recently peaked at a twenty-year high.
This rate reduction occurs within a housing market characterized by both demand suppression and limited supply. Buyers are adapting to rates that exceed 7%, yet many remain sidelined due to financial constraints. Concurrently, sellers are reluctant to enter the market, opting to retain their current, more favorable mortgage rates. The resulting scarcity of available homes contributes to persistent price escalations, as evidenced by the National Association of Realtors' recent findings which showed a 2.2% increase in median home prices to $406,900 in the third quarter.
The financial burden on homeowners has intensified, with the average mortgage payment on a typical home surging by 19% compared to the same quarter last year, reaching $2,192. Freddie Mac's chief economist Sam Khater highlights the broader economic pressures impacting consumers, including increasing household debt fueled by mortgages and other loans. He cautions that unless mortgage rates fall significantly more, the housing market is likely to remain subdued.
While the recent drop in Treasury yields, which guide mortgage rates, suggests a pause in the Federal Reserve's rate hikes, the Fed has not completely ruled out further increases. The labor market's apparent slowdown and the pending economic data will be crucial in determining if the current policy stance has sufficiently countered inflation. Jiayi Xu, an economist at Realtor.com, suggests that the prospect of additional rate hikes will likely prompt investors to maintain a cautious approach, with expectations for rates to remain stable or increase slightly.
This article was originally published on Quiver Quantitative