Expectations of Fed rate cut brings good news for homebuyers
Mortgage rates fell this week, following positive economic data that suggests the Federal Reserve may ease up on interest rates later this year.
Freddie Mac’s latest Primary Mortgage Market Survey shows a slight decrease in both 30-year and 15-year fixed rates. The 30-year fixed-rate mortgage (FRM) averaged 6.89% for the week ending July 11, down from 6.95% the previous week.
The 15-year FRM also saw a decrease, averaging 6.17%, down from 6.25% last week and 6.30% a year ago.
“Following June’s jobs report, which showed a cooling labor market, the 10-year Treasury yield decreased this week, and mortgage rates followed suit,” Sam Khater, Freddie Mac’s chief economist, said in the PMMS report.
Khater also pointed to a boost in housing inventory, including properties with price reductions, as a positive sign for potential buyers.
“Companies are slowing down their pace of hiring, which is the result that the Federal Reserve is looking for. Mortgage rates fell on the prospect of one or two Fed rate cuts this year,” added NerdWallet mortgage expert Holden Lewis.
While mortgage rates are down, affordability remains a concern. Rising shelter inflation, a key component tracked by the Fed, continues to put upward pressure on housing costs.
However, First American chief economist Mark Fleming is optimistic about a potential shift in Fed policy based on recent inflation data.
“The June CPI data is music to the Fed’s ears,” said Fleming, adding that a decline in shelter inflation, combined with other positive signs, increases the likelihood of a Fed rate cut in September, possibly followed by another by year-end.
This could be good news for homebuyers, as anticipation of lower rates is already influencing the market.
Despite the potential for lower rates, a recent Fannie Mae survey revealed a cautious outlook among homebuyers. A larger share of respondents believe both home prices and mortgage rates will rise in the coming year – up from 31% to 33%.
“If mortgage rates decline through the end of the year, as we currently forecast, we do think home sales activity will pick up, but progress on that front is likely to be slow due to the ongoing imbalance between supply and demand,” Fannie Mae chief economist Doug Duncan said in a statement.
Duncan acknowledged the ongoing supply and demand imbalance impacting the housing market.
“A significant majority of consumers continue to tell us that it’s a ‘bad time’ to buy a home, and they’re also telling us that they expect both home prices and mortgage rates to move higher over the next 12 months,” he said. “Taken together, in our view, this leaves little upside to overall sentiment until meaningful progress is made on affordability – most likely in the form of either lower rates or improved supply.
Read more: Consumer housing sentiment edges up, affordability still a major issue
“Of course, the flip side to a difficult purchase market is an advantageous sales market, and respondents also maintained their position that it’s a generally good time to sell, pointing to high home prices as the primary reason.”
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