Mortgage rates drop as inflation improves

Rates for the 30-year mortgage dropped slightly this week but remained above the 5% mark, indicating that concerns over inflation may be beginning to wane, according to new data from Freddie Mac.  

The average rate for a 30-year fixed-rate mortgage registered at 5.13% for the week ending Aug. 18, according to Freddie Mac's Primary Mortgage Market Survey. This is a slight decrease from last week when it averaged 5.22% and is significantly higher than last year when it was 2.86%.

Other loan terms also dropped this week. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) decreased to 4.39%. This is down from 4.43% last week and up from 2.43% last year. Similarly, the 15-year mortgage also decreased to 4.55%, down from 4.59% last week and up from 2.16% last year. 

"Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year," Sam Khater, Freddie Mac's chief economist, said.  

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Inflation, other economic factors impact mortgage rates

The decrease in mortgage rates comes against the backdrop of positive economic indicators, rounded out by the latest retail sales figures reported this week. July data from the Commerce Department showed that retail sales rose 0.4% for the month, indicating that consumers are still spending on products and services despite high inflation.

"With gas prices taking a noticeable step back last month, there are expectations that inflation may slowly abate in the second half of the year," George Raitu, Realtor.com's manager of economic research, said in a statement. "In addition, moderating home price and rent growth may further contribute to a slowdown in consumer prices."

The Consumer Price Index (CPI), a measure of inflation, rose 8.5% annually in July, dropping from 9.1% the month prior, according to the Bureau of Labor Statistics. On a monthly basis, inflation remained unchanged after rising 1.3% in June. 

The price of gasoline fell 7.7% in July, offsetting increased costs in food and shelter, according to the report. The energy index declined 4.6% over the month, even as electricity costs increased.

Separately, non-farm payroll employment increased by 528,000 in July, according to the latest employment report from the Bureau of Labor Statistics (BLS). During this time, the unemployment rate decreased to 3.5%. The job gains were led by increases in leisure and hospitality, professional and business services and healthcare.

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Mortgage applications tumble

Homebuyers' continued struggle with higher borrowing costs and rising home prices has resulted in a slowdown in home sales and is likely to keep demand for housing muted, according to Khater.

"The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability," Khater said. "As a result, over the rest of the year, purchase demand will likely continue to drag, supply will modestly increase, and home price growth will decelerate." 

The proof is in lower mortgage application figures. The Mortgage Bankers Association (MBA) released data for the week ending Aug. 12 that showed mortgage applications decreased 2.3% from one week earlier. Overall, applications have declined to their lowest levels since 2000, the MBA’s weekly mortgage applications survey said.

However, home price growth has slowed, which could bring some buyers back to the market. CoreLogic predicted that home price growth will slow to 4.3% year-over-year by June 2023.  

"If home price growth slows more significantly and mortgage rates move lower, we might see some purchase activity return later in the year," Joel Kan, MBA's associate vice president of economic and industry forecasting, said.   

If you want to take out a mortgage or get a mortgage refinance, using an online marketplace like Credible can help you compare lenders and save money. If you have any questions, you can also contact Credible to speak to a home loan expert.

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