This week saw a slight fall in the mortgage rates, thus providing some breathing room to American citizens who are dealing with a very costly housing market. According to the article, the rate for the 30-year fixed mortgage fell to 6.47% for the week ending June 18, compared to 6.52% in the previous week. Although the difference is insignificant, it counts in a very sensitive market.
It seems like the reason for such a decline was the improvement in geopolitical sentiments following the announcement of a preliminary deal reached between the US and Iran, which suggested that the world would stabilize. This move positively affected the market sentiment, resulting in falling mortgage rates. In comparison with the rates of 6.81% one year ago, the current situation is somewhat better.
According to the economists, the recent step can be considered an incentive for more activity in the summer home buying season. The chief economist at Freddie Mac pointed out that despite the difficult conditions in the market, consumer activity still stays quite robust, which is evidenced by the positive dynamics of retail sales and housing sales under contract.
Why Lower Rates Are Helping—but Not Solving Everything
Despite the declining trends, there are still uncertainties ahead. Industry specialists note that one good week does not ensure long-term downward tendencies in the rates. The market is still in balance between such factors as inflation fears, movement in the Treasury yields, and expectations of Fed’s actions.
The Federal Reserve decided to leave the target range for the federal funds rate unchanged at 3.5% to 3.75% this week. Although the decision was predictable, the language of Fed’s leadership implies that inflation fighting is the key focus now. Thus, investors will look for any chances for another rate hike during this year.
It should be mentioned that another factor affecting the mortgage rates is the yield of the 10-year Treasury. Therefore, while positive peace news from abroad may offer some temporary relief, the actions of the bond markets and inflation rates will have a greater impact on where the mortgage rates go in the future.
Thus, the recent decline in the rates is good news for the mortgage borrowers, but it cannot be regarded as an indicator of the turning point.
What It Means for Buyers in Today’s Market
Even despite the pressure of affordability issues, however, the spring market has demonstrated unusual strength. Contract signings were up 3.8 percent in May, as buyers have reacted to cheaper prices and higher availability of homes on the market. Sellers themselves have started changing their expectations. Asking prices have declined year over year for the seventh consecutive month already, and inventory numbers are well-above those of last year.
This mix of slightly lower mortgage rates, softer asking prices and higher inventory levels might mean that the upcoming market could be more favorable for buyers than the previous few years. Nevertheless, it will take more than just national average rates to secure a loan for buyers. Lenders still price mortgages on such factors as borrower’s credit score, down payment, loan size and home type.
While this week’s drop in interest rates is surely good news, however, it should be viewed as a possibility to be on guard instead of relaxing. The conditions are changing, but market is still quite fragile in terms of economic and policy news. Homebuyers have got some margin for a moment, but not an easy ride.
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