As concerns about the U.S. economy loom, mortgage rates decline

The 30-year fixed-rate mortgage averaged 5.30% in the week ended July 28, down from 5.54% a week earlier, according to Freddie Mac. This is 2.80 percent higher than last year.

Rates rose sharply at the beginning of the year, rising to 5.81% in mid-June. Since then, however, rising inflation and fears that the U.S. economy could slide into recession have made them more volatile.

Freddie Mac Chief Economist Sam Cater said the demand for homes continues to decline as buyers grapple with higher prices, higher home prices, the threat of a recession and declining consumer confidence.

“Over the past two years, the combination of the pandemic, record low mortgage rates and the opportunity to work remotely has clearly created a strong demand,” he said. “Right now, as the market adjusts to a higher price environment, we’re seeing a period of subdued selling activity until the market normalizes.”

Lending rates fell as investors expected another 75 basis point rate hike from the Federal Reserve In a meeting on Wednesday. It was the second hike of this magnitude in as many months.

The Federal Reserve does not set the interest rates that borrowers pay on direct loans. Instead of a mortgage Rates tend to track 10-year U.S. Treasury yields, which fell last week ahead of the central bank’s meeting. But they are indirectly influenced by the Fed’s efforts to tame inflation.

The federation also said on Wednesday. it is. It is likely to cut interest rates in the coming months.

“The statement was welcomed by financial markets,” said George Ratieu, manager of economic research at “These measures are expected to put significant pressure on borrowing costs, including mortgage rates, going forward.”

Borrowing costs will rise.

Consumers will feel the impact of the Fed’s rate hikes over the next couple of months, Ratiu said, adding that credit card interest rates and new auto loan rates will increase over the next few billing cycles.

How much house can I afford?

“Borrowers with adjustable-rate loans — or expecting to sign up for one soon — can expect to see rate increases,” he said.

The high costs of home financing are already having an impact. Buyers are finding homes at lower prices as inflation eats away at a larger portion of their incomes and rising borrowing costs reduce their purchasing power.

A year ago, a buyer who put 20% down on a median home price of $390,000 and paid the balance on a 30-year fixed-rate loan at an average interest rate of 2.80% had a monthly mortgage payment of $1,282, the numbers show. From Freddie Mac.

Today, a homeowner who buys a home with an average rate of 5.30% pays $1,733 a month in principal and interest. That’s an extra $451 per month.

Interest among buyers is slowing.

As mortgages become more expensive, buyer interest has waned and many sellers are seeing their properties sit on the market longer.

“Price cuts are becoming the go-to strategy for those motivated to sell,” Ratiu said. “We can expect the rebalancing in housing markets to continue and accelerate, especially as we look into the fall and winter seasons.”

The actions of the Federal Reserve are designed to reduce inflation by reducing demand.

While home prices continued to climb to record highs in June, the number of sales is slowing.

Mortgage applications are also falling, and last week they fell for the fourth consecutive week, according to the Mortgage Bankers Association.

“Increased economic uncertainty and affordability problems are keeping households from entering the market, which is slowing down purchasing activity that would eventually approach lower prices when the pandemic begins,” said Joel Kahn, MBA’s vice president of economic and industry forecasting.

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