From ‘frenzy’ to ‘fatigue’ as mortgage rates, applications dip
The average rate on a 30-year loan settled at 7.12% this week, but a decline in mortgage applications suggests that “consumers are weary.”
Key points:
- Mortgage rates fell slightly from last week’s 7.18%, but have been above 7% for four consecutive weeks.
- The Fed’s upcoming meeting could influence where rates go next.
- Consumers continue to face affordability challenges, and a drop in mortgage applications could signal a market cooldown this fall.
Mortgage rates eased again this week, dropping below peak levels reached in late August but remaining above 7% for the fourth consecutive week.
Freddie Mac's weekly survey put the 30-year fixed-rate mortgage at 7.12%, down from 7.18%. The 15-year rate also dipped slightly, from 6.55% to 6.52%, after remaining flat the week prior.
Are rates now on a downward trajectory? It's likely too soon to tell given the volatility in the housing market and the economy as a whole — and even if rates do fall further, buyers may still face affordability challenges, said Jessica Lautz, NAR deputy chief economist.
"While this is a two-week decline in rates, the mortgage payment for a $400,000 home purchased today vs. last year is $259 more per month," noted Lautz.
Bright MLS Chief Economist Lisa Sturtevant expects rates to come down more this fall, but also noted that "the fatigue factor," as well as affordability issues, could suppress consumer activity.
"After two years of a pandemic-fueled housing market frenzy and another year of rising rates and tight inventory, consumers are weary. Even if rates dip down to below 7% in the coming weeks, that is not going to stave off a market cooldown this fall," said Sturtevant.
A drop in mortgage applications, which fell 2.9% according to the latest data from the Mortgage Bankers Association, may be a sign of that consumer weariness.
"Mortgage applications declined to the lowest level since December 1996, despite a drop in mortgage rates," said Joel Kan, MBA's vice president and deputy chief economist. "Both purchase and refinance applications fell, with the purchase index hitting a 28-year low, as prospective buyers remain on the sidelines due to low housing inventory and elevated mortgage rates," Kan said.
The direction of rates will also continue to be influenced by economic factors like jobs and inflation, and more directly, by the actions of the Federal Reserve, which meets later this month. Some experts expect one more hike this year, while others think the Fed will pause for now.
Lautz, for one, believes it's time for the Fed to pause rate hikes. "One hopes the Fed recognizes the ease in inflation and the job market at the desired sweet spot and stops raising the Fed Funds rate," she said.
Daily rate fluctuations suggest that the declines of the past two weeks could be short-lived. Mortgage News Daily's average rate for Aug. 7 was 7.33%, which reflected a steady increase over the past several days.