U.S. mortgage rates have slightly decreased this week after reaching an eight-month high, as inflation appears to be cooling. According to Freddie Mac, the average rate for a 30-year loan fell to 6.78% from 6.96% the previous week. This marks the first decline since June and the largest one-week drop since March. However, the current rate is still significantly higher than the 5.54% recorded a year ago and the pre-pandemic average of 3.9%.
Freddie Mac's chief economist, Sam Khater, attributes the decrease in mortgage rates to the slowdown in inflation. However, the shortage of previously owned homes available for sale continues to hinder potential homebuyers from taking advantage of the declining rates. On the other hand, homebuilders seem to be benefiting from the current market conditions, with rising sentiment among them.
The average rate for a 15-year mortgage, which is more popular among homeowners looking to refinance, also dropped to 6.06% from 6.3% in the previous week.
Last year, the Federal Reserve's aggressive interest-rate hike campaign led to mortgage rates surpassing 7%, causing a cooling effect on the housing market. However, rates have been slow to retreat from the nearly two-decade high, resulting in many potential buyers being priced out of the market.
Even a minor change in rates can significantly impact the monthly payments of potential homebuyers. A study by LendingTree compared the average monthly payments on 30-year fixed-rate mortgages in April 2022, when rates were around 3.79%, with rates one year later at 5.25%. The study revealed that higher rates could cost borrowers hundreds of dollars more each month and potentially add up to $75,000 over the lifetime of a 30-year loan.
Despite higher interest rates, home prices have been slow to decrease due to a worsening inventory shortage. Sellers who locked in a low mortgage rate before the pandemic have been hesitant to sell, given the current high rates. As a result, the number of available homes on the market in June was down over 47% compared to pre-pandemic levels.
It is uncertain whether mortgage rates will fall below 6% before the end of 2023, according to Lisa Sturtevant, the chief economist at Bright MLS. The question remains whether rates will decrease enough to entice sellers into the market, who would have to give up their low pandemic-era mortgage rates.