Following a slight average mortgage rate increase this week, economists are pointing to a slow summer housing market ahead and even a possible interest rate increase, but recent housing reports show the market continues to hold steady.
The average 30-year fixed mortgage rate increased to 6.52% from 6.48% last week, according to the latest Primary Mortgage Market Survey® (PMMS®), released by Freddie Mac Thursday.
Bright MLS Chief Economist Dr. Lisa Sturtevant said mortgage rates will likely continue increasing after this week’s Consumer Price Index report that showed inflation hitting a three-year high.
“In May, reports on the national housing market showed a healthy bounce, as homebuyers were drawn into the market by more inventory and as more were coming to terms with rates in the mid-6% range,” Sturtevant said. “There will be no rate cut when the Federal Reserve meets this week and higher inflation, along with a resilient labor market, are putting a rate increase on the table this summer.”
She said the higher rates will continue to hold back sellers with low rates who are reluctant to give them up and that while there are buyers who have been undeterred by higher rates, they may not be able to find a home as inventory growth starts to slow.
“As a result, it is likely to be a slow summer housing market,” she noted.
Realtor.com Economist Jiayi Xu said on the employment side, a resilient labor market has dampened investors’ hopes for near-term rate cuts, agreeing that the three-year high in headline CPI makes a Fed pause next week nearly certain.
“What began as a question of when the Fed would cut rates has quietly shifted—ongoing global tensions and rising energy prices have prompted some to wonder whether a rate increase may be back on the table,” she said. “Fortunately, core inflation rose only modestly, suggesting that higher energy prices have not yet spilled into other major categories—with the exception of airfare.”
But Xu also commented on the market’s resilience.
“Despite rates remaining higher than expected, buyers and sellers are recalibrating and responding to the uncertainty in kind. Sellers are adjusting prices to attract demand, with the median asking price posting its steepest year-over-year decline (in Realtor.com data since 2017). Buyers, in turn, are seizing the opportunity, pushing pending sales up for a sixth consecutive month.
However, she added, “If inflation continues to outpace wage growth, eroding purchasing power alongside still-elevated mortgage rates, household budgets will come under increasing pressure, posing a meaningful drag on housing demand heading into the summer.”
For the full Freddie Mac report, click here.
