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Illustration by Lanette Behiry/Real Estate News

Mortgage rates dip slightly, but economic concerns grow 

The 30-year mortgage rate averaged 6.39% this week, down from 6.43%, but the decline has not spurred an increase in mortgage applications.

May 4, 2023
2 minutes

Key points:

  • The small decline in the 30-year rate brings it back down to the average rate seen two weeks ago.
  • Bank closures and a lack of guidance from the Fed leave some economists concerned that a recession is coming.
  • Newly constructed homes are a growing share of inventory and may bring more buyers to the market.

Mortgage interest rates ticked down this week, but recession concerns are mounting. 

The 30-year-fixed-rate mortgage averaged 6.39% this week, according to the latest Freddie Mac survey. That's down slightly from last week's 6.43%, and a return to the level seen two weeks ago.

Sam Khater, Freddie Mac's chief economist, attributed the drop to the recent volatility in the banking sector, including the takeover of First Republic Bank over the weekend. Although rates remain elevated, Khater believes demand is still out there.

"Spring is typically the busiest season for the residential housing market and, despite rates hovering in the mid-six percent range, this year is no different," Khater said. "Interested homebuyers are acclimating to the current rate environment, but the lack of inventory remains a primary obstacle to affordability."

Most economists agree that the Federal Reserve's latest rate hike of 25 basis points on Wednesday won't have much impact on mortgage rates in the short term because it was widely expected and baked into the current numbers. 

However, there is a growing concern that the cumulative effect of 10 consecutive rate hikes will do more than tame inflation. There is a risk that the Fed's actions will spawn a recession, said economist Jiayi Xu, who noted that the economy is really starting to cool off.

"Although markets are more focused on whether the rate hikes have concluded, the Federal Reserve did not provide a definitive forward guidance in the meeting and continues to leave the door open to various scenarios," Xu said.

Such concerns were echoed by Lawrence Yun, chief economist for the National Association of Realtors, who called the latest interest rate hike "unnecessary and harmful."

Despite the slight dip in mortgage rates, buyers did not appear to be taking action. The number of mortgage applications decreased 1.2% from a week earlier, according to the latest survey from the Mortgage Bankers Association.

Joel Kan, MBA's deputy chief economist, said elevated rates, along with very low inventory, are still impacting homebuyer affordability, particularly for existing homes.

"However, newly constructed homes account for a growing share of inventory, giving more options for prospective buyers," Kan said.

While the 30-year mortgage rate was down slightly, the 15-year fixed-rate mortgage rose from 5.71% to 5.76% in the past week.

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