Mortgage rates up for a second week, but may top out soon
The average 30-year mortgage was up slightly this week, but cooling inflation is a sign that the market is stabilizing, which should prompt declines.
Key points:
- The 30-year fixed-rate mortgage averaged 6.43% this week after rising two weeks in a row.
- However, with the economy slowing faster than expected in the first quarter, mortgage rates could start declining soon.
- Despite the slowdown, one more interest rate hike is expected next week from the Federal Reserve.
Mortgage interest rates continued to edge upward this week, but economic data suggests a decline is coming soon.
Freddie Mac's survey put the average 30-year fixed-rate mortgage at 6.43% this week, up from 6.39% last week.
"The 30-year fixed-rate mortgage increased modestly for the second straight week, but with the rate of inflation decelerating, rates should gently decline over the course of 2023," said Sam Khater, Freddie Mac's chief economist. "Incoming data suggest the housing market has stabilized from a sales and house price perspective. The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home."
Nadia Evangelou, senior economist at the National Association of Realtors, expects the mortgage rate to drift down to around 5.8% by the end of the year.
"Although mortgage rates will continue to fluctuate in the following months, the overall trend will continue downward," Evangelou said.
Mortgage applications up again after a mid-April dip
The recent rise in mortgage interest rates didn't slow down mortgage applications, according to the Mortgage Bankers Association. The organization's survey found that applications rose 3.7% for the week ending April 21, a turnaround from the previous week which saw an 8.8% decline.
"Both conventional and government home purchase applications increased last week. However, activity was still nearly 28 percent below last year's pace, as high mortgage rates and low supply have slowed the market this year, even as home-price growth has decelerated in many markets across the country," said Joel Kan, MBA's vice president and deputy chief economist.
Economic slowdown may lead to a short recession
In the broader economy, Gross Domestic Product slowed to 1.1% in the first quarter — a sign that inflation is cooling and growth is slowing faster than many economists predicted, as GDP was expected to come in around 2% for the quarter.
Despite the slowdown, economists expect the Fed to raise interest rates at least one more time when it meets on May 2. While that may further reduce inflation, it will come at a cost.
"We forecast a short recession in the coming quarters, as these tighter financial conditions exert a drag on consumer and business activity through tighter lending conditions and higher rates," Kan said.
The 15-year fixed-rate mortgage averaged 5.71% this week, down from last week's 5.76%.