Mortgage rates have seen a slight decrease this week, although it may not be enough to entice buyers into the market. The trajectory of mortgage rates going forward will likely depend on economic data that will be released next week.
According to Freddie Mac, the average 30-year fixed-rate mortgage was 7.12% during the week ending on Thursday, September 7. This marks the second consecutive decline after rates reached a more than two-decade high of 7.23% in late August.
However, this pullback is unlikely to have a significant impact on potential buyers. In fact, this week’s reading signifies the fourth consecutive period where rates have remained above 7%. This is the longest streak since 2002, as stated by historical data.
While the Freddie Mac survey provides a weekly average, daily data indicates that mortgage rate movements over the past week have not been consistent. Mortgage News Daily reports a significant drop in rates early last week, which remained relatively stable until last Friday.
However, starting Tuesday and Wednesday, rates began to climb again as the 10-year Treasury yield, often linked to mortgage rates, increased. By Thursday morning, the yield had risen by 0.106 percentage points to 4.279%, according to Dow Jones Market Data.
The rise in the 10-year yield follows positive signals of economic strength. Freddie Mac’s chief economist, Sam Khater, commented on the buoyant economy, stating that while inflation has slowed down, stronger economic data has pushed mortgage rates higher. This puts additional strain on potential homebuyers who are already grappling with affordability challenges.
Mortgage Demand Hits a 27-Year Low
Higher mortgage rates have taken a toll on mortgage demand, leading to a decline in mortgage applications. According to the Mortgage Bankers Association, last week saw a significant drop in mortgage applications, reaching a 27-year low. Borrowers have been feeling the squeeze as mortgage rates have remained above 7 percent. This stagnation in the housing market is expected to persist until there is an increase in housing inventory and mortgage rates become more affordable.
Buyer Sentiment Takes a Hit
The impact of higher rates is evident in buyer sentiment as well. Fannie Mae’s home purchase sentiment index revealed that over four in five respondents believe it is currently a bad time to buy a home. This sentiment is on par with the index’s record high, which was last seen in July. Consumers remain pessimistic towards the housing market and are particularly concerned about the conditions for homebuying.
Economic Data Could Bring Changes
With more economic data on the way, there is potential for notable shifts in mortgage rates. The Bureau of Labor Statistics is set to release its Consumer Price Index for August this week. According to FactSet consensus estimates, economists are expecting the measure, excluding changes in food and energy prices, to increase by 4.3% compared to last year. This would represent a slower gain than the 4.7% reading recorded in July.
It remains to be seen how these developments will play out in the housing market. For now, borrowers are anxiously awaiting more affordable options, while economists observe the intricacies of mortgage rates and their impact on demand.