The continued summer slowdown in the housing market could see an uptick in transactions before fall, but economists are pointing to an array of economic and geopolitical headwinds that could possibly drive mortgage rates even higher as the spark.
The average 30-year fixed mortgage rate (FRM) rose another 8 basis points this week to 6.66%, up from 6.58% last week, and the 15-year FRM averaged 6.04%, up from 5.96% last week, according to the latest Primary Mortgage Market Survey® (PMMS®), released by Freddie Mac Thursday.
Rates have been increasing for the last four straight weeks, reaching their highest point since last July.
Bright MLS Chief Economist Lisa Sturtevant noted that while the Federal Reserve kept interest rates unchanged at its meeting this week, there were calls from some members of the FOMC to raise short-term interest rates to keep prices from escalating. She also said inflation remains well above the Fed’s target rate of 2% and rising oil prices due to the ongoing conflict in the Middle East suggest further increases.
“Homebuyers are watching this all play out as the housing market slows seasonally,” Sturtevant said. “Most market signals indicate subdued conditions. But it’s possible that we could see a surprise bump in transactions at the end of the summer if buyers expect mortgage rates to move higher in the fall.”
Realtor.com Senior Economist Anthony Smith broke down the Fed’s decision in further detail.
“The Federal Reserve held the federal funds rate steady this week in a range of 3.5 to 3.75 percent, where it has stood since December,” he said. “Three members dissented in favor of a 0.25 percentage point hike, a signal that the committee is no longer in lockstep on inflation and that a cut is not the next move on the table. The 10-year Treasury yield jumped as the decision came out, and markets have started pricing in a rate increase as soon as September. Since mortgage rates tend to track the 10-year Treasury, this week’s move higher reflects that repricing.”
He said while this week’s Personal Consumption Expenditures report (the Fed’s preferred inflation gauge), dipped 0.1% in June for its first monthly decline since 2020, “the drop traced back to falling oil prices during June’s brief U.S. and Iran truce, which has since collapsed, making it look more like a backward-looking low point than the start of a durable slowdown.”
Ultimately, Smith said, because oil remains the primary channel through which the Iran conflict feeds inflation, a de-escalation and a reopening of the Strait of Hormuz remains the clearest path back toward lower rates.
To read the full report from Freddie Mac, click here.
