Mortgage rates fall below 7% for the first time in 6 weeks 

Homebuyers who've been holding out this spring may have some late-season opportunities as interest rates decline and inventory in many areas continues to climb.

The 30-year fixed-rate mortgage dropped below 7% this week, marking the first time rates have reentered the 6% range in more than a month, according to Freddie Mac's weekly survey. Rates have now declined for three consecutive weeks, falling from 7.22% on May 2 to an average of 6.94% this week.

The 15-year fixed-rate also dipped, averaging 6.24% this week.

This downward trend could be short-lived: According to Mortgage News Daily, the average rate has risen the past few days, coming in at 7.17% on May 23.

Slightly encouraging inflation data appears to be a factor in the recent rate drops, which may lead to further declines, said Jlayi Xu, an economist at Realtor.com. But it's still not clear when the Federal Reserve will have enough confidence that inflation is moving toward its 2% target to prompt it to cut interest rates.

"We expect that this confidence-building process will take longer, positioning the Fed for an adjustment in late summer or early fall, which could then subsequently impact mortgage rates," Xu said.

Active listings, applications up

For buyers who can make the current interest rates pencil out, there are more homes to choose from. Redfin's four-week rolling average for active listings was 901,194, up 14.8% compared to a year ago. In its latest market report, Redfin estimates the months of supply is 3.2, edging closer to the 4-5 month level it considers to be a balanced market.

Mortgage applications were up 1.9% this week, according to the Mortgage Bankers Association. Much of that pick-up in activity was in mortgage refinances, however, said MBA's Deputy Chief Economist Joel Kan, who said high list prices were putting a damper on purchase applications.

Despite the recent downward trend in mortgage rates, it's still an extremely difficult market, noted Jessica Lautz, deputy chief economist at the National Association of Realtors.

"Is this a housing market only for the wealthy? 28% of buyers last month paid with cash and did not care about mortgage rates, and the largest annual growth in existing home sales was over $1 million," Lautz said.

Fannie Mae expects 'higher for longer' trend to continue

Fannie Mae's research group is expecting mortgage rates to stick around 7% for the rest of the year, which will "modestly" slow housing activity for the rest of 2024. However, it does see the possibility of some rate declines.

The agency is projecting 2024 homes sales to total 4.89 million, down from its last projection of 4.96 million. It's also becoming less bullish about a 2025 rebound, projecting 5.29 million home sales, down from its previous projection of 5.47 million.

With home prices continuing to rise and the labor market weakening, a drop in mortgage rates "appears to be the likeliest lever to achieve an improvement in affordability," said Doug Duncan, Fannie Mae's chief economist.

April sales slowed across the board

The "higher for longer" interest rate environment appeared to slow both new and existing homes sales in April. New single-family home sales last month were at a seasonally adjusted annual rate of 634,000, down 4.7% compared to March and down 7.7% from a year ago, according to the U.S. Census.

Existing home sales declined 1.9% in April compared to March and were also down 1.9% year-over-year.

While higher interest rates sapped the momentum out of new home sales in April, it is expected to be a short-term slowdown even with higher mortgages and supply-side issues, said First American Deputy Chief Economist Odeta Kushi. 

"Despite the challenges, the new-home market will likely continue to outperform the existing-home market over the near term because, unlike existing homeowners, builders are not rate locked-in," Kushi said.