Rates Fall for Third Week, Fed is Still Concerned About Inflation
Mortgage rates dropped for the third consecutive week, decreasing another 8 basis points last week and a total of 28 basis points over the past three weeks according to the Freddie Mac Primary Mortgage Market Survey released May 23rd. Spring homebuyers received an unexpected windfall this week, as mortgage rates fell below the seven percent threshold for the first time in over a month. Although this week’s data on previously owned home sales showed a decline, total inventory of both new and existing homes is up. Greater supply coupled with the recent downward trend in rates is an encouraging sign for the housing market.
Mortgage applications increased 1.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 17th. “The 30-year fixed mortgage rate declined for the third straight week, dropping to the lowest level in seven weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Rates coming down from recent highs spurred some borrowers to act. Purchase activity continues to lag despite this recent decline in rates, down 11 percent from a year ago, as potential buyers still face limited for-sale inventory and high list prices.”
Sales of previously owned homes fell 1.9% in April from March to 4.14 million units, on a seasonally adjusted annualized basis, according to the National Association of Realtors. The forecast had been for a slight gain. Tight supply kept prices under pressure. The median price of an existing home sold in April was $407,600, an increase of 5.7% year over year. With multiple offers due to strong demand, 27% of homes sold above list price. “Home prices reaching a record high for the month of April is very good news for homeowners,” said Lawrence Yun, Chief Economist for NAR. “However, the pace of price increases should taper off since more housing inventory is becoming available.”
Federal Reserve officials raised concerns during their May policy-setting meeting that progress on inflation is stalled, while “many” questioned whether policy was restrictive enough to tame price pressures within the economy. Minutes from the U.S. central bank’s May meeting released Wednesday showed that officials are prepared to keep rates elevated for longer after a string of disappointing inflation readings in the first three months of the year. “Participants noted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2 percent,” the minutes said.
