A house against the backdrop of a graph line reflecting shifting mortgage interest rates.
Illustration by Lanette Behiry/Real Estate News

Mortgage rates post biggest weekly drop in 3 months 

The 30-year fixed-rate mortgage averaged 6.78% this week, down from nearly 7% a week before, suggesting that cooling inflation is having an effect.

July 20, 2023
3 minutes

Key points:

  • Economists expect mortgage rates to continue falling in the coming months — but they aren't likely to drop below 6%.
  • The Federal Reserve meets next week to determine whether another interest rate hike is needed to further cool inflation.
  • Affordability, inventory remain blockers for many potential buyers.

After recently reaching a record high for the year, mortgage rates fell sharply this week, a sign that slowing inflation is finally starting to effect the housing market.

The 30-year fixed-rate mortgage averaged 6.78% this week, according to the latest Freddie Mac survey. That's down from 6.96% last week and snapped a three-week rise in rates. The 15-year fixed-rate mortgage averaged 6.06%, down from last week's 6.3%.

With inflation now in the 3% range, it's starting to have an impact on mortgage rates, said Sam Khater, Freddie Mac's chief economist.

"Still, the ongoing shortage of previously owned homes for sale has been a detriment to homebuyers looking to take advantage of declining rates," Khater said. "On the other hand, homebuilders have an edge in today's market, and incoming data shows that homebuilder sentiment continues to rise."

It was the biggest one-week drop in mortgage rates since mid-March, knocking rates down from what was an eight-month high. While this may be the start of a downward trend, rates aren't likely to dip below 6% before the end of the year, said Lisa Sturtevant, chief economist at Bright MLS.

"The question is whether they will fall enough to entice sellers into the market who will have to give up the super low mortgage rate they secured during the pandemic," Sturtevant said.

And rates may continue to move up and down in the near term. Mortgage News Daily noted that the average rate for July 20 was 7%, up from 6.9% the day before.

One important wild card that could determine where interest rates go next is the outcome of next week's Federal Reserve's meeting. A Reuters survey of economists indicates many are expecting another rate hike of 25 basis points as the Federal Reserve continues to try and get inflation down to its target level of 2%.

The fact that inflation is cooling while the labor market remains strong suggests that policymakers are on the right track, said Hannah Jones, Realtor.com economic data analyst.

"However, home shoppers are still feeling the pressure of recently climbing mortgage rates, as well as limited affordable inventory," Jones said. "Sellers remain hesitant to engage with today's market, creating competition for the relatively few homes on the market in many areas. The current market dynamics are likely to persist until affordability and inventory gains are made."

With rates falling over the past week, applications for mortgages edged up 1.1%, according to the Mortgage Bankers Association's survey.

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