Freddie Mac: Mortgage Rates Decline, Applications Rise

According to Freddie Mac, mortgage rates have dropped for the second consecutive week, with the average 30-year fixed-rate mortgage falling to 6.95%, down from 6.99% the previous week. This decline follows positive economic data indicating a slight softening in consumer prices, with annual price growth at 3.3% in May. Despite this progress, the Federal Reserve has decided to maintain the federal funds rate range at 5.25% to 5.5%, aiming to ensure inflation continues to trend toward its 2% target. Freddie Mac’s Chief Economist, Sam Khater, noted that while inflation numbers were flat, shelter inflation increased, highlighting ongoing challenges in housing affordability.

The drop in mortgage rates has spurred increased market activity, with mortgage applications rising 15.6% for the week ending June 7, as the Mortgage Bankers Association (MBA) reported. Refinance applications saw a notable jump of 28% from the previous week, driven by borrowers, particularly Veterans Affairs borrowers, seeking to lower their rates. MBA forecasts suggest that mortgage rates could continue to fall, potentially reaching as low as 6.5% this year. MBA President Bob Broeksmit remarked that the decline in rates and reports of rising inventory levels are positive signs for prospective homebuyers this summer.

Record Number of Homeowners Mortgage-Free Shifts Housing Market

The U.S. economy has shown remarkable resilience despite the fastest Federal Reserve rate hike cycle in four decades. A critical factor in this resilience is the stability provided by the housing market, where 96% of mortgage debt is fixed rate, and 38.5% of homeowners are mortgage-free. Unlike in the U.K. and Canada, most U.S. homeowners are unaffected by rising market rates, allowing them to maintain spending and support economic stability. Additionally, mortgage-free homeowners can leverage their equity to buy new homes without incurring high interest rates, further insulating them from economic shocks.

From 2010 to 2022, the proportion of owner-occupied homes without a mortgage increased from 32.1% to 38.5%, primarily driven by the aging baby boomer generation, many of whom have paid off their mortgages. It’s interesting to note the regional disparities in this trend, with regions offering more affordable housing and having larger elderly populations showing higher percentages of mortgage-free homes. For instance, West Virginia and Mississippi lead the nation, with over half of owner-occupied homes mortgage-free, while states like Maryland and Colorado have lower percentages. Texas stands out with 18 counties in the top 50 U.S. counties with the highest rates of mortgage-free homes, showcasing the diverse landscape of the housing market.

US Mortgage Rates Drop Below 7% for First Time Since March

US mortgage rates fell below 7% last week for the first time since March, prompting a rise in home purchase financing applications. The 30-year fixed mortgage rate dropped to 6.94%, and the five-year adjustable-rate mortgage decreased to 6.27%, the lowest since February. This decline in rates led to a 1.6% increase in the mortgage application index, reaching the highest level since March, following an 8.6% rise the previous week.

The drop in mortgage rates mirrors a decrease in Treasury yields, driven by data indicating a broad cooling of inflationary pressures. This situation has fueled trader expectations that the Federal Reserve might be better positioned to cut interest rates, possibly as soon as September. Lower financing costs could help offset high home prices and boost housing demand. Builders like Lennar and KB Home have been offering incentives, such as discounted mortgage rates, to encourage orders and mitigate affordability issues. MBA’s overall index of applications, including purchases and refinancing, rose 0.9% to the highest level since mid-January, though the refinancing gauge dipped 0.4%.