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Mortgage rates continued their downward trend this week amid signs that the US economy is cooling down due to monetary policy tightening.
However, recent markdowns have not been enough to convince borrowers to take out a home loan.
Danielle Hale, chief economist at Realtor.com, said in a statement that this week’s labor cost data provided a glimmer of hope as it showed hourly wages were lower than previously reported in the second and third quarters for all sectors except manufacturing.
Hale also said that anyone paying attention to the price at the pump would have noticed a decline as well.
Next week’s consumer price index data will confirm whether these trends are omnipresent in the variety of goods and services consumers buy.
All eyes are on the Fed
Inflation and the job market are slowing, which means the Federal Reserve doesn’t need to raise federal funds rates as aggressively as it did in the 75 basis point hikes of the past four meetings.
Instead, most investors expect the Fed to raise rates by 50 basis points at next week’s meeting.
That’s why the average 30-year fixed-rate mortgage rate fell to 6.33% this week, down 16 basis points from the previous week, according to the latest Freddie Mac survey. The same loan interest averaged down 3.10% a year ago.
At Mortgage News Daily, rates were even lower, at 6.29% on Thursday afternoon. Sam Khater, CEO of Freddie Mac, said in a statement that mortgage rates fell for the fourth straight week amid growing concerns about weak economic growth.
Mortgage rates have fallen three-quarters of a point in the past four weeks, the steepest drop since 2008.
While the decline in interest rates is large, sentiment among homebuyers remains subdued, with no major positive response from demand for purchase at these lowest prices.
According to Hale, the reason is crystal clear. Recent price drops have reduced the cost of buying a home by an average of $185 per month, compared to the recent rate hike.
However, borrowers are paying an average of $880 more a month than last year. The analysis assumes that a buyer of an average priced home for sale today will make a 10% down payment.
Hale said budgeting for a home purchase “has been incredibly difficult for homebuyers who have seen their purchasing power fluctuate as rates change.”
House prices flat and falling
Mortgage applications were down 1.9% this week compared to last week’s Thanksgiving holiday-adjusted results, according to data from the Mortgage Bankers Association (MBA).
Bob Broeksmit, president and CEO of MBA, said in a statement that prospective home buyers continue to put off home buying decisions even as home prices flatten or decline.
“The average loan for a purchase application last week was at its lowest level in nearly two years, another indication that home prices are cooling down.
However, some analysts see some limitations on the home price correction. Credit reporting agency Moody’s expects home prices to fall 12.2% in 2022, but 4.1% in 2023.
According to the Moody’s analyst report, the market maintains key strengths, including favorable demographic trends, supply constraints after a decade of under building and underwriting, and generally strong mortgage structures, primarily in the form of fixed loans with 30-year maturities.
They added that risks vary across metro areas and different market segments, with potential home price declines of 15%-25% or more in some areas.
However, home prices in these areas will generally remain well above pre-pandemic levels, Moody’s analysts said.
Analysts wrote that the size of the recent boom, current construction levels and changes in migration patterns (for example, as remote work and environmental issues evolve) will drive local prices higher.
Reference Source: Housing Wire
