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Mortgage rates dipped to a 7.02% average this week, the second consecutive week for declines, Freddie Mac reports.
“The decrease in rates, albeit small, may provide a bit more wiggle room in the budgets of prospective home buyers,” says Sam Khater, Freddie Mac’s chief economist.
Rates above 7% have been blamed for slowing down the spring homebuying season. Homebuilders said this week that higher rates, which are pressing on home buyers’ budgets, are prompting them to build fewer homes.
“While the start of the year has seen an expansion for single-family home building because of a lack of existing inventory, homebuilding activity leveled off in April as higher interest rates, tighter lending conditions and lower sentiment acted as headwinds on new-home construction,” says Carl Harris, chairman of the National Association of Home Builders. “Lower interest rates, particularly for builder and developer loans, will help builders to increase the pace of home construction in the months ahead.”
Despite the latest ease in mortgage rates, home buyers haven’t been flooding back to the market. Mortgage applications for home purchases—viewed as a gauge of future homebuying activity—fell 2% in the latest week and are down 14% from a year ago, the Mortgage Bankers Association reports. The biggest pullback has been seen in Federal Housing Administration loan applications, which tend to be favored by first-time or low-income buyers.
“While the downward move in rates benefits prospective home buyers, mortgage rates are still much higher than they were a year ago while For Sale inventory remains tight,” says Joel Kan, deputy chief economist at the Mortgage Bankers Association.
At this week’s 7.02% average for the 30-year fixed-rate mortgage, the typical monthly mortgage payment on a $400,000 home, assuming a 10% down payment, would be about $2,400, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®.
Mortgage rates have remained above 7% for five consecutive weeks. “Higher rates are hurting first-time homeowners and eroding affordability,” Lautz says. However, this week’s inflation data showed a slight decline, which could help lower mortgage rates for spring home buyers, Lautz adds.
Freddie Mac reports the following national averages with rates for the week ending May 16:
- 30-year fixed-rate mortgages: averaged 7.02%, dropping from last week’s 7.09% average. A year ago, 30-year rates averaged 6.39%.
- 15-year fixed-rate mortgages: averaged 6.28%, also falling from last week’s 6.38% average. A year ago, 15-year rates averaged 5.75%.
