This week’s mortgage rates declined slightly, continuing a recent “sideways trend” at the low 6% mark. Rates reflected a moderation in inflation and the banking crisis, and the consequent expectation that the Federal Reserve (Fed) is done hiking the federal funds rate.
Per Freddie Mac‘s Primary Mortgage Market Survey, the 30-year fixed-rate mortgage averaged 6.35% as of May 11, down four basis points from last week’s 6.39%. The same rate was at 5.30% on average a year ago at this time.
“This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023. This should bode well for the trajectory of mortgage rates over the long term,” Khater added.
Overall, inflation cooled further in April. The Consumer Price Index (CPI) rose 4.9% year over year before seasonal adjustment, according to the Bureau of Labor Statistics (BLS). This is the 10th consecutive month of declines to the lowest level in two years.
“The Freddie Mac fixed rate for a 30-year mortgage rate continued to move lower this week to 6.35% as 10-yr treasury yields trended down,” Jiayi Xu, Realtor.com‘s economist, said in a statement. “In light of a strong jobs report last week, April’s CPI data reinforced that we are very likely at the end of the tightening cycle.”
However, Xu highlighted that the U.S. economy is moving in the right direction, but at a slower pace than desired by the Fed, with inflation at double the 2% target.
“Although the labor market figures are promising amidst concerns of a recession, it also gives the Fed little reason to cut rates in the short term,” Xu said. “In June, the Fed will release its updated economic projections, and we will have a clearer picture at that time after more data is available.”
Where is the market headed?
Xu says that, as long as the economy continues to see progress on inflation, “it is expected that mortgage rates will remain toward the lower end of the 6-7% range.”
“Meanwhile, the housing market continues to face challenges as home sellers are less active this spring. In addition to the “locked-in effect” of mortgage rates, sellers are facing another issue caused by high inflation: the increasing costs of home improvements prior to selling.”
Mortgage Bankers Association (MBA) president and CEO Bob Broeksmit said the recent decline in mortgage rates is good news for prospective homebuyers. However, the housing supply is still too low in many parts of the country.
“Housing construction has slowed, and some would-be sellers are delaying decisions because of economic uncertainty and an unwillingness to give up their low-rate mortgage,” Broeksmit said in a statement.
Logan Mohtashami, HousingWire’s lead analyst, said mortgage rates are not where they should be, if considering their historical correlation with the 10-year U.S. Treasury yield. Spreads have been impacted by tighter financial credit, and the Fed is no longer buying mortgage-backed securities (MBS).
“If mortgage spreads were normal, mortgage rates would be 5.25% today,” Mohtashami said.
That’s below his range for mortgage rates in 2023. Mohtashami projects mortgage rates to be between 5.75% and 7.25% this year, but “as long as the labor market stays firm, meaning jobless claims don’t break over 323,000 on the four-week moving average.”
Today’s number is 264,000, Mohtashami said.