Mortgage Rates Fall Slightly, But Not Enough to Help Existing Home Sales
Mortgage rates fell for the fourth straight week, albeit only one additional basis point last week according to the Freddie Mac Primary Mortgage Market Survey released June 27th. Rates have now hit their lowest point in almost three months. By historical standards, the economy is in good shape, and we expect rates to continue to come down over the summer months, bringing additional homebuyers back into the market.
Mortgage applications increased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending June 21, 2024. “Mortgage rates were mostly lower last week, with the 30-year fixed rate declining slightly to the lowest level in more than three months,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Lower rates, however, were still not enough to entice refinance borrowers back, as most continue to hold mortgages with considerably lower rates. Purchase applications did see a small increase. Government purchase loans, primarily FHA and VA, saw gains of more than 2 percent over the previous week, as homebuyers in those segments sought to take advantage of the recent rate relief.”
Existing home sales declined in May as home prices reached a record high. The US median home price reached $419,300, helping explain the slowdown in home sales as interest rates remain elevated. According to the National Association of Realtors (NAR), existing home sales dropped 0.7% in May from April to 4.11 million units on a seasonally adjusted annual basis. Combined with elevated interest rates that have been hovering around 7%, the conditions are leaving homebuyers with affordability challenges. The inventory of homes for sale increased almost 7% to 1.28 million units in May from the previous month, according to the NAR. The current level is considered a 3.7-month supply, the highest in over four years. Inventory is nearly 19% higher than in the same month a year ago.
U.S. economic growth was much weaker than expected to start the year, and prices rose at a faster pace, the Commerce Department reported Thursday. Gross Domestic Product, a broad measure of goods and services produced in the January-through-March period, increased at a 1.6% annualized pace when adjusted for seasonality and inflation, according to the department’s Bureau of Economic Analysis. The personal consumption expenditures price index, a key inflation variable for the Federal Reserve, rose at a 3.4% annualized pace for the quarter, its biggest gain in a year and up from 1.8% in the fourth quarter. “This was the worst of both worlds report; slower than expected growth, higher than expected inflation,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “We are not far from all rate cuts being backed out of investor expectations. It forces Fed Chair Jerome Powell into a hawkish tone for next week’s Federal Open Market Committee meeting.”
