Toy house blocks and an upward arrow

Mortgage rates back up after 4 weeks of declines 

With average rates approaching 7%, it’s still a tough housing market — but there are signs it may be easing.

July 3, 2024
3 minutes

Key points:

  • 30-year mortgage rates hit 6.95% this week, but economists say rates could start falling soon.
  • Home prices are still rising, but the pace is slowing — a trend that is expected to continue.
  • If rate drops bring buyers back to the market, they will have more homes to choose from as inventory builds.

Housing affordability isn't getting any better —  but the latest economic data suggests the pain could start easing.

CoreLogic's latest Home Price Index reported national annual price growth of 4.9% in May, but that pace is expected to slow, hitting 3% in May 2025.

It's still a remarkable stretch of growth: Home prices have been rising for 148 consecutive months — or more than 12 years. 

The expected deceleration is largely due to rising mortgage rates that are continuing to suppress homebuyer demand. It's reached a point where some markets in Florida and Texas are experiencing negative price growth, said Selma Hepp, chief economist at CoreLogic.

Mortgage rates up, but declines are still expected

The 30-year fixed-rate mortgage headed back toward 7% after four weeks of modest declines, averaging 6.95% this week according to Freddie Mac. That's up from 6.86% the week before. 

But many economists are sticking with their predictions of declines in the second half of the year. Lower rates, combined with more inventory and slowing price growth, should bode well for homebuyers, said Sam Khater, Freddie Mac's chief economist.

Another ray of hope? "We may actually start to see rates fall sooner than expected," said Bright MLS Chief Economist Lisa Sturtevant. A lot depends on the upcoming jobs and inflation reports, noted Sturtevant, who said that while the Federal Reserve is unlikely to take action on rates in July, a September rate cut is looking more likely. 

And if investors feel confident that cuts are on the way, mortgage rates could start dropping in the coming weeks, she said.

Affordability at its worst level in more than a decade

The latest ATTOM data for the second quarter shows how widespread the affordability problem is across the country. The report found that single-family homes and condominiums remain less affordable than historical norms across 99% of the country.

It's at its worst point since the housing boom began in 2012, said Rob Barber, CEO at ATTOM, who noted that "the latest affordability data presents a clear challenge for homebuyers."

Much of the affordability crunch has taken place in the past three years. Monthly mortgage costs, homeowners insurance and property taxes for a typical home currently consume 35.1% of the average wage. At the beginning of 2021, that figure was 21.3%.

The recommended lending guideline of 28% is now a rarity in the U.S., with the report noting that housing costs ate up a higher percentage of wages in more than 80% of the counties studied. That's roughly twice as many counties as in early 2021, according to ATTOM.

Even if interest rates drifted down to around 6.7% and wage growth was normal by the end of the year, home affordability will essentially be the same as it was at the end of 2023, said Mark Fleming, chief economist at First American.

Applications down, inventory up

With the rise in mortgage rates this week, applications for mortgages slowed, according to the Mortgage Bankers Association. The seasonally adjusted Purchase Index decreased 3% compared to the previous week and was 12% lower than the same week one year ago. 

With applications down, inventory continues to climb. The latest Redfin report, which tracks data on four-week rolling averages, noted that new listings increased 9.9% year-over-year, which is the highest level in two months. That puts active listings at 17.5% above last year's level.

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