Mortgage Rates Dip to 6.94%, First Time Below 7% Since April

Key Takeaway

• The average 30-year fixed mortgage rate fell to 6.94%, the first dip below 7% since early April, according to Freddie Mac.
• Despite the rate drop, homebuyers remain hesitant due to high prices and low inventory; purchase mortgage applications fell by 1% this week.
• Existing home sales declined by 1.9% in April, with median home prices rising nearly 6% year-over-year to $407,600.

Mortgage Rates Dip Below 7%

For the first time since early April, the average 30-year fixed mortgage rate has fallen below 7%, settling at 6.94%, according to Freddie Mac. This marks the third consecutive week of declining rates, a trend that has been closely monitored by market analysts and potential homebuyers alike. Despite this dip, rates have hovered around the 7% mark for over a month, reflecting a volatile yet persistent high-interest environment. Mortgage News Daily reported that daily rate movements fluctuated between 7% and 7.20% over the past week, ending at 7.17% on Thursday.

Spring Homebuying Season Slows

Traditionally, the spring season is the most active period for the housing market, but this year has been notably sluggish. Elevated mortgage rates, high home prices, and limited inventory have created significant barriers for homebuyers. The sale of previously owned homes fell by 1.9% in April, according to the National Association of Realtors (NAR), despite a slight increase in housing inventory. Corey Burr, founder of The Burr Group, highlighted the challenges, stating, "It's very hard to have incredible volume when the rates are high and the inventory is relatively low to historic measures."

Homebuyers Remain Hesitant

Despite the recent dip in mortgage rates, homebuyers remain cautious. The Mortgage Bankers Association (MBA) reported a 1% decline in the volume of purchase mortgage applications this week compared to the previous week. Year-over-year, mortgage applications are down 11%. However, refinance activity has seen a significant uptick, increasing by 7% weekly and 21% from a year ago. Joel Kan, MBA's deputy chief economist, noted, "Purchase activity continues to lag despite this recent decline in rates … as potential buyers still face limited for-sale inventory and high list prices."

Existing Home Sales and Inventory Challenges

The existing home sales market continues to struggle with low inventory levels. The NAR reported that total housing inventory at the end of April was 1.21 million units, a 9% monthly increase but still far below the pre-COVID average of 1.9 million homes. This scarcity has driven home prices to new highs, with the median existing home price rising nearly 6% to $407,600 in April from $385,800 a year ago. Lawrence Yun, NAR's chief economist, emphasized the unprecedented nature of the current market, stating, "We are in a new terrain, new territory as to how the lock-in effect or impact will restrain home sales."

Broader Market Implications

The recent decline in mortgage rates, while modest, offers a glimmer of hope for the housing market. Sam Khater, Freddie Mac’s chief economist, pointed out that greater supply coupled with the downward trend in rates is an encouraging sign. However, the Federal Reserve's stance on interest rates remains a critical factor. Jiayi Xu, a Realtor.com economist, noted, "For rates to fall further below 7%, there must be consistent evidence that inflation is on track to return to 2%." The Fed's cautious approach to rate cuts suggests that significant easing in mortgage rates may not occur until there is more substantial progress in controlling inflation.

Street Views

• Corey Burr, The Burr Group (Neutral on the housing market):

  "It's very hard to have incredible volume when the rates are high and the inventory is relatively low to historic measures."

• Joel Kan, MBA (Bearish on purchase activity in the housing market):

  "Purchase activity continues to lag despite this recent decline in rates … as potential buyers still face limited for-sale inventory and high list prices."

• Lawrence Yun, NAR (Bearish on home sales due to lock-in effect):

  "We are in a new terrain, new territory as to how the lock-in effect or impact will restrain home sales. We've never seen such a thing.”