The average 30-year mortgage rate dropped one basis point to 4.59 this week according to secondary market mortgage participant Freddie Mac, as rising rates and higher home prices are tempering a summer season that typically sees an uptick in homebuying activity.
Long-term mortgage rates have been running at their highest levels in the last seven years. The benchmark 30-year mortgage rate reached as high as 4.66% on May 24 compared to a year ago when the interest rate was at 3.9%. In addition, the average rate on the 15-year, fixed-rate loan fell to 4.05% this week from 4.08% last week.
Related: Homebuyers Forge on Despite Rising Mortgage Rates
The data from Freddie Mac corroborates with the National Home Builders Association reporting that average mortgage rates jumped by more than 30 basis points in the second quarter to 4.67% versus 4.34% the previous quarter. Backed by a bull run in the capital markets and data showing that gross domestic product increased 4.1% in the second quarter, the Federal Reserve is expected to hike interest rates in September, but mortgage rates are still at historical lows nonetheless.
“The Fed has taken a cautious approach to raising rates since the recovery began. And mortgage markets have responded in a slow and conservative way. Inflation has also been low since the recovery began. That has also kept rates historically low,” said Taylor Marr, senior economist at real estate brokerage Redfin.
Rising rates have been accompanied by an increase in real estate prices, which have also hampered real estate activity. According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), the combo of high prices and interest rates brought down housing affordability to a 10-year low in the second quarter of 2018.
Additionally, the national median home price jumped from $252,000 in the first quarter of 2018 to $265,000 in the second quarter — the highest quarterly median price in the history of the HOI series. However, summer homebuyers can still take advantage of the current rates as Freddie Mac cites that they have mostly been moving sideways rather than spiking upward.
“This stability is much needed for home sales, which have crested because of the multi-year run up in prices, tight affordable inventory and this year’s higher rates,” the government-sponsored enterprise noted in a blog. “Going forward, the strong economy will support the housing market, but with affordability pressures mounting, further spikes in mortgage rates will lead to continued softening in home price growth.”
Related: Richmond Fed President Says Rates Must Keep Rising
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