Little chance of rate cuts in the current economy
Mortgage rates ticked up this week, and it could take a recession to bring them down. But that doesn’t mean a home sales rebound is off the table.
Key points:
- The 30-year fixed-rate mortgage ticked up to 6.81% this week after the U.S. reached a tentative trade deal with China.
- Rates aren’t likely to drop significantly unless economic conditions take a major turn.
- But buyers are feeling less anxious as the economy stabilizes, and that could lead to a late-season improvement in home sales.
The rollback on tariffs earlier this week was good news for the stock market, but it didn't help homebuyers looking to finance their purchase.
The 30-year fixed-rate mortgage averaged 6.81% this week, according to the latest Freddie Mac survey, up slightly from last week's rate of 6.76%. Mortgage News Daily, which uses a different set of metrics to determine rates, put the average daily rate at 6.96% for May 15.
This week's rate increase is tied to the rising 10-year Treasury yield, which is driven by the recent U.S. trade agreements with the United Kingdom and China, said Hannah Jones, senior research analyst at Realtor.com.
"While U.S. tariff policies remain in flux, the agreements suggest increased costs for imported goods, though these effects have yet to show up in CPI inflation data," Jones said.
Few scenarios for significantly lower rates
The current dynamic between mortgage rates and the overall economy is a bit of a catch-22 situation for homebuyers, said Chen Zhao, Redfin's head of economics research.
"Mortgage rates are unlikely to fall unless all of the new tariffs are eliminated, or if the country falls into a fairly severe recession — which would cut housing budgets for many Americans," Zhao said. She also thinks the reduction in tariffs with China makes it unlikely that the Federal Reserve will cut rates soon, as the odds of a recession have declined while inflation concerns remain in place.
The elevated rates are hindering what's already been a slow homebuying season this spring. Zillow's April market report found that sales were lagging behind last year's pace even though mortgage rates were over 7% at that time.
Still some optimism going forward
With inventory rising and price growth slowing, there is still a chance that sales will pick up heading into summer, according to Kara Ng, a senior economist at Zillow.
"Economic anxieties disrupted the start of the home shopping season. In April, many households didn't know what was next for their jobs, investment portfolios or budgets. This kept some buyers on the sidelines, waiting for clearer economic signals before making major purchases like a home," said Ng.
"As uncertainty has since eased, improved availability and affordability in homes could lead to a rebound in the coming months," she added.
Mortgage applications a bright spot as inventory improves
Lower consumer anxiety, coupled with more homes to choose from, appears to be spurring an increase in mortgage applications. Purchase applications rose 2% from a week earlier and are 18% higher compared to the same period last year, according to the Mortgage Bankers Association.
"Despite the economic uncertainty, the increase in home inventory means there are additional properties to buy, unlike the last two years, and this supply is supporting more transactions," said Mike Fratantoni, MBA's chief economist.
New listings continue to outpace home sales, with 44 of the 50 largest metros posting year-over-year increases in newly listed properties, according to Zillow's report.
"In 16 major metros, inventory has surpassed pre-pandemic levels — particularly in the South and some Western areas," Ng said.
Builders are still nervous
Home builders remain less optimistic, according to the latest survey from the National Association of Homebuilders. The NAHB's confidence index fell six points in May to 34, the lowest level since November 2023.
The monthly survey found that 78% of builders reported difficulties pricing new homes due to the uncertainty around material costs, said Robert Dietz, chief economist at the NAHB, though he noted that 90% of the survey results came in before the May 12 announcement of reduced tariffs on China.