The U.S. debt ceiling impasse was solved when President Joe Biden signed a bill on Saturday to suspend the $31.4 trillion limit until January 2025 and cap government spending. It alleviated some pressure on mortgage rates, which declined over the past week.
But uncertainties over the Federal Reserve‘s (Fed) next steps are keeping mortgage rates high, with the 30-year fixed mortgage rate above 6.5% for the third consecutive week. Investors’ eyes are now fixed on the upcoming FOMC meeting, scheduled for June 13 and 14.
Freddie Mac‘s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year fixed rate averaged 6.71% as of June 8, down from last week’s 6.79%. The same product was at 5.23% a year ago at this time, roughly two months into the start of the Fed’s hiking policy.
“Mortgage rates decreased after a three-week climb,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers.”
Other indexes show mortgage rates even higher. The 30-year fixed rate for conventional loans, which hit 7.14% at Mortgage News Daily two weeks ago, was 6.97% on Wednesday. HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.75% on Wednesday.
Last week, Fed officials signaled that a pause in rate hikes would be appropriate for June’s meeting. The CME FedWatch Tool shows a 77% chance the Fed will hold rates at the current 5% to 5.25% range, according to interest rate traders.
Overall consumer prices cooled in April, with the Consumer Price Index (CPI) rising 4.9% year over year, before seasonal adjustment, according to the Bureau of Labor Statistics (BLS). May’s data will become public on June 13, the first day of the Fed’s meeting.
However, the labor market brings mixed signals. Total nonfarm payroll employment rose by 339,000 jobs compared to April, according to the BLS. But, as more people entered the workforce, the unemployment rate ticked up to 3.7% in May, compared to 3.4% in April, with the total number of unemployed persons rising to 6.1 million.
“May’s jobs report reflected another month of stronger employment activity with higher than expected net new jobs added to the market,” Jiayi Xu, Realtor.com economist, said in a statement. “However, the simultaneous rise in the unemployment rate in May showed mixed signals in the labor market, indicating the complexities involved in interpreting economic data and introducing uncertainties in the upcoming Federal Reserve policy decisions.”
According to Xu, framing the next Fed’s move in terms of “skipping” rather than “pausing” indicates that the current interest rate may not have reached its peak for this particular economic cycle.
“While the potential for another rate hike raises the prospect of increased mortgage rates, the objective of curbing inflation will ultimately lead to a decline in mortgage rates, bringing much-desired stability to the market.”
Other central banks imposed rate hikes amid stubborn inflation this week, defying expectations that they would hold rates steady. On Tuesday, the Federal Bank of Australia raised rates by 25 basis points to 4.1%. The Bank of Canada increased rates by 25 bps to 4.75% on Wednesday, the highest level since 2001.
In the U.S., “Several leading members of the central bank have voiced support for a rate pause this month, giving some investors hope that rate hikes may be over,” according to George Ratiu, chief economist at Keeping Current Matters.
One caveat: “However, with inflation still running near 5%, the bank’s rate-setting committee remains focused on taming price growth toward its 2% target and is not likely to back away from the task. Even with a June pause, additional rate hikes are on the table for the second half of 2023.”
According to Ratiu, the spread between the 10-year Treasury and Freddie Mac’s 30-year mortgage rate remains elevated, mirroring investor uncertainty. “Expect mortgage rates to continue running in the 6% – 7% band for the next few weeks,” Ratiu said.
Mortgage Bankers Association (MBA) president and CEO Bob Broeksmit said high rates, low inventory and economic uncertainty resulted in a slow housing market at the start of 2023 summer.
“Despite rates inching downward last week, both purchase and refinance activity fell on a weekly and annual basis,” Broeksmit said. “The labor market continues to be exceptionally strong, which could bring more buyers back into the market once rates move away from their recent highs.”