A downward-facing arrow next to a house represents falling mortgage rates.
Illustration by Lanette Behiry/Real Estate News

Mortgage rates finally inch down, but buyers aren’t pouncing 

The 30-year fixed-rate mortgage averaged 6.71% this week, the first drop in nearly a month.

June 8, 2023
3 minutes

Key points:

  • Even if rates drop further, low inventory continues to be a barrier for buyers.
  • But sellers might be enticed to list their homes if rates fall below 6%.
  • The Fed is hinting at an interest rate pause next week, but more rate hikes could be on the table in the second half of the year.

Mortgage interest rates trended downward this week following the passage of a federal debt ceiling agreement which eased market uncertainty.

The 30-year fixed-rate mortgage averaged 6.71%, according to the latest Freddie Mac weekly survey. That's down from 6.79% a week ago and is the first drop in nearly a month.

Still, the housing market remains constrained, said Lisa Sturtevant, chief economist for Bright MLS. "Buyers may be waiting for rates to come down further before they get into the market, but most will still be disappointed by extremely low inventory," Sturtevant said.

More importantly, said Sturtevant, is how low interest rates will need to drop before sellers are willing to enter the market and give up their existing low mortgage rates.

"We are not going to see rates fall back to the historically low pandemic levels. But even if rates fall somewhat, ticking below the 6% mark, some homeowners who have been wanting to move will be willing to put their home on the market," Sturtevant said. "There will still be a gap between their current rate and their new rate, but that gap could be small enough for them to make a move."

The Fed's next move is still unclear

The short-term direction of mortgage rates could be influenced by the outcome of the Federal Reserve meeting next week. Many economists expect the Fed to take no new action on interest rates, but a recent strong jobs report means another hike is possible.

Economists are closely listening to the Fed's language, looking for clues to what they might decide. 

"By framing the discussion in terms of 'skipping' rather than 'pausing,' policymakers are indicating that the current interest rate may not have reached its peak for this particular economic cycle," said Realtor.com economist Jiayi Xu. "While the potential for another rate hike raises the prospect of increased mortgage rates, the objective of curbing inflation will ultimately lead to a decline in mortgage rates, bringing much-desired stability to the market."

George Ratiu, chief economist at Keeping Current Matters, said a June break from hikes would probably be temporary if the Fed remains determined to get inflation down to a target level of 2%.

"Even with a June pause, additional hikes are on the table for the second half of 2023," Ratiu said.

Mortgage applications continued to slow, dropping 1.4% from a week earlier, according to the Mortgage Bankers Association. Applications remain 30% below last year's levels.

The 15-year fixed rate mortgage was 6.07% last week, down from 6.18% the week before, according to the Freddie Mac survey.

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