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Mortgage rates on the rise, but relief on the horizon

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And the pendulum continues its powerful momentum…

After two weeks of declines, Freddie Mac reported that the 30-year Fixed Rate Mortgage (FRM) averaged 5.23% for the week ending June 9, 2022, up from last week when it averaged 5.09%. A year ago at this time, the 30-year FRM averaged 2.96%.

“After little movement over the past few weeks, mortgage rates have risen again due to increased economic activity and incoming inflation data,” said Sam Khater, chief economist at Freddie Mac. “The housing market is incredibly rate sensitive, so when mortgage rates suddenly rise, demand falls again. The significant drop in buying activity, combined with the increased supply of homes at sell, will cause price growth to decelerate to more normal levels, offering some relief to buyers still interested in buying a home.

And the rate hike comes with an expected decline in mortgage application volume, as the Mortgage Bankers Association (MBA) reported that application volume fell to a 22-year low this week, falling by 6.5% week over week.

“Mortgage applications declined as purchases and refinances saw activity decline,” said Realtor.com Senior Economist and Director of Economic Research George Ratiu. “Median-priced homebuyers are looking at a monthly mortgage payment 55% higher than a year ago, adding $695 more to their monthly expenses. Compounding those pressures, nearly 20 states have average gas prices above $5 a gallon, pushing living costs to new heights, especially as employers insist on bringing workers back to offices.

Freddie Mac also reported that this week the 15-year FRM rose, on average 4.38% (averaging 0.8 points), up from last week when it averaged 4. .32%. A year ago at this time, the 15-year FRM averaged 2.23%. The five-year Treasury-indexed hybrid variable-rate (ARM) mortgage also rose this week, averaging 4.12% (with an average of 0.3 points), up from last week. where it averaged 4.04%. A year ago at this time, the five-year ARM averaged 2.55%.

“For many Americans looking for affordable housing, mid-size cities remain a viable alternative, especially as the number of homes for sale has increased, providing new options,” Ratiu said. “The overriding challenge is balancing the ability to find a home at a good price, which often means traveling further from city centres, with the potential need to get to an office. It is up to companies to maintain the flexibility of a workforce that is squeezed from all sides at once, or risk losing employees. The economic outlook depends heavily on the well-being of the American consumer.

Consumers’ outlook for the US economy remains bleak, however, as the latest Fannie Mae Homebuying Sentiment Index (HPSI) remained relatively flat in May – falling just 0.3 points – but closing in on from its 10-year, pandemic low of 63.0 recorded in April 2020. The HPSI measures consumers’ home buying sentiment from Fannie Mae’s National Housing Survey (NHS) in a single figure, measuring their current views and forward-looking expectations regarding housing market conditions. The IPSH found consumers were still concerned about housing affordability, with the ‘Right time to buy’ indicator hitting a new low in the survey, with 79% of respondents saying now was a bad time to buy. to buy a house. Seventy percent of HPSI respondents expect mortgage rates to continue rising over the next year.

“Consumer expectations that their personal financial situation will worsen over the next year hit an all-time high in the May survey, and they expressed greater concern about job security” , commented Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae on the latest HPSI. readings. “Furthermore, respondents’ pessimism about home buying conditions continued into May, with the percentage of respondents saying it’s a bad time to buy a home hit a new high. proportion of people saying it’s ‘easy to get a mortgage’ also fell across almost all segments.”