Mortgage rates surge even as inflation falls 

As we make our way through the dog days of summer, relief from elevated mortgage rates remains elusive.

The 30-year fixed-rate mortgage jumped to its highest level since November, just shy of 7%. Freddie Mac's weekly survey put the average rate at 6.96% this week, up from last week's average of 6.81% and the third consecutive week of rising rates.

"The fact that the economy is still performing well and the Federal Reserve will stay the course on raising interest rates have led to this upward pressure on mortgage rates over the past two weeks," said Bright MLS Chief Economist Lisa Sturtevant.

Sturtevant said buyers who are already in the market have not been deterred by elevated rates — in this low-inventory environment, they are more focused on simply finding a home and getting an offer accepted. But for those who've been holding out for lower rates, they may be waiting for a while longer.

"Could rates exceed 7% again? And would that be enough to finally lead to widespread home price drops? The answer to the first question is probably yes, and to the second, probably no," she said.

Inflation is leveling out, but housing costs remain high

While mortgage rates are up, inflation is down — significantly. The latest Consumer Price Index released on July 12 put annual inflation at 3% in June, the lowest reading in more than two years. 

Lawrence Yun, NAR chief economist, responded positively to the falling CPI numbers, stating that "low inflation means low mortgage rates" and could spur more home sales as well as new home construction. 

Still, the housing portion of the index, which accounted for more than 70% of the CPI increase, remains stubbornly high at 7.8%. 

"Housing should not be treated like other goods and services in the CPI's basket," said Sturtevant, who argued that increasing housing supply — not more rate hikes from the Fed — is key to reducing costs. "Pushing rates higher without a strategy for increasing supply in the market will not cause housing costs to fall — until the Fed has gone too far by sending the economy into a recession and decimating demand through job and income losses."

Yun agreed that rate hikes are no longer the solution. "The Fed appears too focused on the lagging economic indicator of jobs rather than early indicators like future inflation and commercial leasing activity; they should look ahead and stop raising interest rates."

Mortgage applications inched up

Mortgage applications edged up slightly — by just under 1% compared to the week prior — largely due to an increase in FHA and VA loans, according to the weekly survey from the Mortgage Bankers Association. Purchase applications were down 26% year-over-year, while refinance applications have fallen 39% since this time last year.

MBA VP and Deputy Chief Economist Joel Kan said the economy continues to receive "mixed signals," resulting in higher Treasury yields amid the expectation of a rate hike from the Fed later this month. "All mortgage rates in our survey followed suit, with the 30-year fixed rate increasing to 7.07 percent, the highest level since November 2022," said Kan. 

Mortgage Daily News has reported rates in excess of 7% for nearly two weeks, with July 12 marking the first day of sub-7% rates this month.