Mortgage rates are still hovering just below 7%, but economists say things are still better than they were a year ago in a sign that homebuyer demand is building.
The 30-year, fixed-rate mortgage had decreased slightly to an average of 6.85% as of Thursday, according to mortgage giant Freddie Mac, which buys loans from banks, bundles them into securities, and sells them. The 15-year, fixed-rate mortgage also decreased, averaging 5.99%.
Both averages are lower than they were a year ago, but compared to five years ago, when mortgage rates were historically low during the COVID-19 pandemic, the cost of borrowing is significantly higher.
A similar trend appeared in daily measures of mortgage rates. As of Wednesday afternoon, the 30-year, fixed-rate mortgage had eased to 6.87%, and the 15-year, fixed-rate mortgage had declined to 6.12%.
Homebuyer demand is building
Though this week brought some relief to mortgage rates, in the big picture, the market is still stuck. Yes, rates are below 7%. And yes, they’re down from their highs earlier this year, and even last week.
But that reality stands in contrast to the much more significant slowdown in mortgage rates that many economists and industry insiders anticipated at the start of the year, and it's keeping buyers who are still hopeful for greater relief on the sidelines.
There are some glimmers of hope, though, according to economists.
For one, though mortgage applications have decreased for three consecutive weeks, the volume of prospective buyers applying for mortgages is significantly higher than a year ago. In the week ended May 30, the Mortgage Bankers Association’s index measuring purchase applications was 18% higher than the same week one year ago.
It’s a sign that homebuyers want to buy, they’re just waiting for the right time, according to Lawrence Yun, chief economist at the National Association of Realtors.
"The mortgage rate is the magic bullet, and we are just waiting and waiting as to when that could come down," he said at a conference in Washington, D.C., on Tuesday. "Housing demand appears to be there, but just not getting realized at the moment.”
The economy could be souring
The other glint of hope is that incoming data showing the economy is slowing down could indirectly benefit the mortgage market — bad news for the economy is good news for mortgage rates.
On Wednesday, for example, data about hiring in the U.S. showed that private employers were slamming the brakes on new hires. Though that’s a bad sign for the economy at large, it resulted in lower daily mortgage rates.
“The eternal tradeoff of the relationship between data and rates is that the economy must weaken in order for rates to drop,” Matthew Graham, chief operating officer at Mortgage News Daily, wrote in a Wednesday blog post explaining the correlation.
Economists have suggested that if economic data continues to sour, the Federal Reserve will have to cut interest rates, a move that would indirectly lower mortgage rates.
“When the Fed [cuts rates], they will be doing so because inflation is fully under control, which means the bond market should be behaving much better,” Yun said Tuesday, “and mortgage rates can go down along with the Federal Reserve rate.”
That said, Yun held to his original forecast, predicting that mortgage rates will end this year at an average of 6.4%. Similarly, mortgage giant Fannie Mae recently revised its forecast, lowering its expectations for the average 30-year, fixed-rate mortgage from as high as 6.8% to 6.4%.
Until then, though, rates, and homebuyer activity, will likely be stuck in a holding pattern, according to Bob Broeksmit, CEO and president of the Mortgage Bankers Association.
“Although refinance and home purchase applications are consistently higher than last year’s pace, we expect activity to remain within the same narrow range until mortgage rates move lower,” he said in a statement Thursday. “MBA expects mortgage rates to decline to 6.6 percent by the end of 2025, which should increase demand.”