Mortgage rates return to peak levels, inflation ticks up
Average rates reached 6.96% again after rising three weeks in a row, and after falling last month, inflation crept back up.
Key points:
- Mortgage rates previously hit 6.96% in mid-July; the weekly average is the highest level of the year so far.
- With inflation ticking higher in July, it's more likely that the Federal Reserve will raise interest rates again in September.
- Elevated rates, along with high home prices, continue to cool demand for home purchases.
Mortgage interest rates rose for the third consecutive week, edging closer to 7%.
The 30-year fixed-rate mortgage averaged 6.96% this week, according to the latest Freddie Mac survey, again hitting peak levels for the year. Rates previously reached 6.96% in mid-July. The 15-year fixed-rate mortgage also marched upward, rising to 6.34%.
Mortgage News Daily put the rate slightly higher at 7.05% in its daily survey for Aug. 9.
A new report on inflation continues to show the strength of the U.S. economy, which could keep mortgage rates elevated. The inflation rate for July was 3.2%, slightly higher than in June and still well above the Federal Reserve's target rate of 2%. It's the first upward tick in more than a year after inflation peaked at 9.1% in June 2022.
A silver lining in the report is that the "core" inflation rate, which doesn't include food and fuel prices, was down year-over-year and the lowest since October 2021. The rent component also continues to moderate and is expected to slow further in the coming months, according to research from the Federal Reserve.
Inflation, combined with the continued strong labor market, makes another interest rate hike more likely when the Fed meets in September, said Lisa Sturtevant, chief economist for Bright MLS. She added that it will be a tough decision, however, given the mixed messages coming out of the U.S. economy right now.
With rates hovering around 7% and home prices at all-time highs in many markets, Sturtevant suspects more buyers might say enough is enough for now, especially since new construction has increased options in the rental market.
"For-sale housing demand could cool considerably this fall. Inventory will also stay low, however, it is unlikely for there to be significant price drops," Sturtevant said.
History suggests mortgage rates tend to start cooling once inflation abates, with a six- to eight-month lag, said George Ratiu, chief economist at Keeping Current Matters. If inflation eases in the coming months, he expects rates to slide back toward 6%.
Meanwhile, as mortgage rates continue to climb, buyer interest appears to have dropped off. The Mortgage Bankers Association reported that mortgage applications decreased 3.1% this week and are down 27% compared to a year ago. It's the third straight week of application declines.