Mortgage rates fell this week, continuing a streak of volatility as the market digests the onset of an economic recession that will impact the US housing sector.
A 30-year fixed-rate mortgage averaged 5.30% through Thursday, according to the latest data from Freddie Mac. The rate is down from the previous week, when it averaged 5.54%, but is still well above its level of 2.80% at the same time last year.
“Buying demand continues to fall as the cumulative impact of higher rates, high home prices, heightened risk of recession and declining consumer confidence weigh on homebuyers,” said Sam Khater, chief economist at Freddie Mac.
“It’s clear that over the past two years the combination of the pandemic, record mortgage rates and the ability to work remotely has spurred increased demand,” Khater added. “Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated selling activity until the market normalizes.”
Mortgage rates have jumped since January as the Federal Reserve implements a series of interest rate hikes to combat decades-high inflation. The Fed continued its effort on Wednesday with its second straight increase of three-quarters of a percentage point.
Fed Chairman Jerome Powell pointed to signs of a cooling in the U.S. housing market after the Fed unveiled its latest above-normal interest rate hike.
“Recent spending and production indicators have softened,” Powell said. “Consumer spending growth has slowed significantly, in part due to lower real disposable income and tighter financial conditions. Activity in the housing sector has weakened, in part due to rising mortgage rates.
Powell indicated that further rate hikes should be implemented in the coming months.
Meanwhile, fears of a recession intensified on Thursday after GDP posted its second straight quarterly decline. A recession is broadly defined as two consecutive quarters of economic contraction.
Fed rate hikes have no direct impact on mortgage rates. However, tighter monetary policy tends to drive mortgage rates higher as the cost of borrowing becomes higher and investors seek refuge in bonds.
The 15-year fixed-rate mortgage averaged 4.58% for the week, down from 4.75% the previous week.
As The Post reported, economists increasingly noted signs of weakness in the housing sector due to the effects of inflation, high house prices and higher mortgage rates. The demand for mortgage applications recently fell to its lowest level in 22 years.
Earlier this week, economist Ian Shepherdson of Pantheon Macroeconomics warned that house prices would fall “substantially” due to the “cratering” of demand among potential home buyers.