Mortgage rates fell again last week, falling three basis points to an average of 2.96%, according to Thursday data Freddie Mac‘s PMMS. Interest rates have now managed to stay within a range of five basis points above or below 3% for almost two months.
In the past, higher mortgage rates have signaled a stronger economy. But this is no ordinary economy: a worried bond market has been keeping a close eye on global macroeconomic trends and changes in Fed policy. These factors have contributed to mortgage interest rates stagnating around the 3% mark.
“The economy is recovering remarkably quickly, and as the pandemic restrictions continue to lift, economic growth will remain strong for the months ahead,” said Sam Khater, Freddie Mac’s chief economist. “Despite the stronger economy, the housing market is seeing a slowdown in purchase application activity due to the slightly higher mortgage rates.”
However, Khater noted that this does not yet need to translate into lower home prices. A shortage of inventory is likely to be a problem for years to come.
May dates from Fannie MaeThe Home Purchase Sentiment Index shows that home buyers are feeling discouraged by the real estate market these days. According to HPSI, only 35% of consumers believe now is a good time to buy a home, up from 47% in April. And those who believe it’s a bad time to be a homebuyer rose from 48% to 56%.
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According to the same survey, mortgage rate expectations for potential homebuyers and sellers differed in May, with respondents unsure whether mortgage rates will rise or stay the same. Only 6% hope they will slip again.
“Builders’ lives have been good with mortgage rates of 3%,” said Logan Mohtashami, Senior Analyst at HousingWire. “When mortgage rates rise above 4%, life may not look so happy. We know this because the last time mortgage rates hit 5% we had a spike in supply and builder stocks felt it was more than 25% below their recent highs. “
He added, “We are far from that level today, but that is something to keep in mind as conditions in the housing market change.”
Mohtashami said the average sales price for new homes remained under control from 2020 to 2021 as home builders added a few smaller homes to the sales mix and fed the frenzy just enough while interest rates are low.
“It remains to be seen how this real estate market will be affected by rising mortgage rates after the rise in the median sales price,” said Mohtashami.