Mortgage rates dip below 7%, but market is still ‘bittersweet’ 

Mortgage interest rates declined modestly this week, but that may not be enough to jumpstart activity in the residential market.

The 30-year fixed-rate mortgage averaged 6.99% this week, according to the latest Freddie Mac survey, down from 7.03%. Rates have generally been trending lower since hitting a high for the year of 7.22% in early May.

The declines are likely tied to recent economic data showing slower growth, said Sam Khater, Freddie Mac's chief economist. Those indicators include a slowdown in gross domestic product growth and weaker jobs data.

While mortgage rates are moving in the right direction for potential homebuyers, they have fallen only moderately — and slowly — all but assuring this year's spring homebuying season will be a letdown compared to beginning-of-the-year forecasts, said Ralph McLaughlin, Realtor.com's senior economist.

"This means buyers are sitting in a bittersweet market right now: They have the most options since before the pandemic, but are stymied because of rising prices and stubbornly high mortgage rates," McLaughlin said.

"Given such conditions, we anticipate the rest of the year to bring a lukewarm housing market with the hopes that falling mortgage rates and rising inventory entices seasonally unorthodox buyers back into the market."

The Fed could be pushed to act

While the Federal Reserve has repeatedly indicated it won't cut rates until it sees clear signs that inflation is cooling, the board may be under more pressure to act following Canada's decision to cut rates earlier this week. It was the country's first rate cut in four years, and also marked the first time a G7 nation has cut rates during this economic cycle.

The European Central Bank followed Canada's lead on June 6, cutting its interest rate for the first time since 2019.

Spring numbers looking soft

Early data suggests that buyer activity has been lackluster so far this year. ATTOM reported that lending activity in the first quarter of 2024 was down almost 70% from its peak in 2021, and it has now hit the lowest level since 2000. Weekly data from the Mortgage Bankers Association found that applications were down 5.2% at the end of May.

It looks like summer will start off slow as well: Pending sales in April hit a four-year low, according to the National Association of Realtors.

That slowdown in sales appears to be impacting home prices in some parts of the country. While up 4.4% year-over-year nationwide, Redfin reported home prices are down annually in four major metros, with Texas cities taking the biggest hit: Austin prices fell 2.9%, San Antonio and Fort Worth each saw a 1.2% decline, and Portland, Oregon, was down 0.9%.

That could be good news for buyers, especially in areas where sales have slowed. "There's no getting around the fact that it's expensive to buy a home right now, but some people are having luck negotiating with sellers," said Bonnie Phillips, a Redfin Premier agent in Cleveland. "I've seen buyers get a home under asking price when it has been on the market for a few weeks."

What's next?

With mortgage rates sticking around 7%, economists continue to adjust their forecasts. The latest Fannie Mae Home Price Expectations Survey was more bullish on home price growth for 2024, but the panel lowered its expectations for 2025.

They also expect the 30-year fixed rate to be at 6.6% at the end of 2024, up significantly from the last forecast of 5.9%.

"A slowdown in home price growth and easing mortgage rates offer a glimmer of hope that the peak of the housing affordability crisis may be behind us," said Terry Loebs, founder of Pulsenomics. 

"However, the price surge of over 50% nationwide since early 2020 has created a high hurdle that will, unfortunately, keep many aspiring homeowners on a slower path to achieving their dream."