Mortgage rates decline for a fifth week; applications rise 

Mortgage interest rates continued their downward trend after the latest inflation numbers pointed to a cooling economy.

Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.27% this week, a hair lower than last week's 6.28%, marking five straight weeks of declines.

Sam Khater, Freddie Mac's chief economist, said that while inflation remains above the Federal Reserve's desired level, it is showing signs of deceleration. The inflation rate was at 5% in March, continuing its decline from the peak of 9.1% in June.

"These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer," Khater said.

That optimism is showing up in mortgage applications: Purchase applications increased 8% compared to a week earlier, according to the Mortgage Bankers Association.

Higher rates may stick around, but Fed action should ease

Buyers may be adjusting to elevated mortgage rates as they edge closer to levels seen a year ago. In April 2022, mortgage interest rates hit 5% as inflation neared peak levels and the Federal Reserve began taking steps to address it.

While the Fed is still trying to juggle the need to cool inflation while avoiding a recession, it might be ready to ease up on frequent rate hikes, said Danielle Hale, Realtor.com's chief economist.

"Even if the Fed needs to raise short-term rates a bit higher, we are very likely nearing the end of the tightening cycle," Hale said. "As long as the economy continues to see progress on inflation, that should help keep mortgage rates at the lower end of the 6% to 7% range that we've seen over the past few months. However, any surprises in the data will likely lead to some volatility in that range."

Interest rates not a key factor in purchase decisions

As interest rates have remained above 6% for nearly seven months, do they still weigh heavily on the minds of potential homebuyers? A recent Bright MLS survey found that most homebuyers didn't list interest rates as an important factor when deciding whether to move forward with a purchase. 

"One reason rates may not have been a make-or-break issue for buyers is that a substantial share of buyers are not financing their home purchase," said Lisa Sturtevant, chief economist at Bright MLS, noting that 20% of recent buyers paid with cash.

The survey also found that nearly half of recent buyers said they were going to buy regardless of mortgage rates. 

"Buyers who are able to roll equity from another home into their purchase will also be less concerned about rates," Sturtevant said. "According to the survey results, repeat buyers are much more likely than first-time buyers to indicate that mortgage rates were not a factor in their decision to buy. Therefore, if mortgage rates do stay elevated or even rise further in 2023, there may be less of an impact on demand than might be commonly expected."