Mortgage rates fall for the third straight week, dipping below 7%
By Bryan Mena, CNN
Washington (CNN) — Mortgage rates declined for the third consecutive week in a shred of good news for Americans dealing with a still-tough housing market.
The standard 30-year fixed-rate mortgage averaged 6.94% in the week ending May 23, down from last week’s average of 7.02%, according to Freddie Mac data released Thursday. That’s the lowest level since early April and below the key 7% threshold.
After moving sideways throughout March, mortgage rates began to climb in late April as economic data showed that inflation’s cooldown stalled earlier in the year. Mortgage rates track the benchmark 10-year US Treasury yield, which moves in anticipation of the Federal Reserve’s decisions on interest rates.
Stubbornly high inflation this year has dashed hopes that the Fed could cut interest rates in the spring or in the summer. But there’s finally been some good news on that front: The Consumer Price Index for April, released last week, showed that inflation didn’t pick up. Bond yields have mostly retreated this month.
“Spring homebuyers received an unexpected windfall this week, as mortgage rates fell below the seven percent threshold for the first time in over a month,” Sam Khater, Freddie Mac’s chief economist, said in a release.
Some Fed officials said earlier this week that they likely won’t raise interest rates again and a few have said they expect to cut rates this year. That bodes well for lower mortgage rates.
But for now, the housing market’s recovery is stagnant. Sales of previously owned homes, which make up the vast majority of the housing market, fell in April for the second month in a row, the National Association of Realtors reported Wednesday. That’s a stark contrast from earlier in the year when sales soared.
The persistent headache of not enough housing supply
Mortgage rates are down from a two-decade peak reached last fall, but they’re still higher than anything seen in the decade leading up to 2022. That’s not the only key issue besieging the housing market.
Another is a persistent under-supply of housing that is simply not keeping up with demand, despite some steady improvements in recent months. That’s partly due to some homeowners deciding to not sell their homes because they’re holding onto the low mortgage rates they locked in before the Fed began to raise interest rates in 2022. With mortgage rates still elevated, some homeowners are deciding to stay put.
The pace of residential construction is also not easing enough of the pressure on the housing market to meaningfully improve affordability. Housing starts rebounded in April to a seasonally adjusted annual rate of 1.36 million units, after declining sharply in the prior month, according to a separate report released last week. But the trend is nowhere near where it should be to make the market easier for many Americans.
“The country needs around 1.6 million or higher for a few years to truly bring about a balance in the housing sector,” Lawrence Yun, NAR’s chief economist, said in statement.
“The housing shortage is not going away,” he said.
Still, there have been some steps in the right direction. NAR reported on Wednesday that housing supply continued to improve in April for the fourth straight month. Total housing inventory at the end of April was 1.21 million units, up 9% from the prior month and 16.3% from a year earlier, according to NAR data, though Yun said that “we still have tight inventory,”
Home prices remain painfully high
Another hurdle is that home prices remain painfully elevated and out of reach for many Americans, especially first-time buyers.
NAR reported Wednesday that home prices continued to rise in April, with the median price of an existing home increasing 5.7% from a year earlier to $407,600. That was the fourth straight monthly expansion and was a record for April prices.
Other measures of home prices have shown the same: US home-price growth picked up in February at the fastest annual pace since November 2022, according to the S&P CoreLogic Case-Shiller US National Home Price Index. Home prices in San Diego, Chicago and Detroit grew the most in February.
High borrowing costs coupled with rising prices and not enough homes on the markets have created a difficult housing market for many. President Joe Biden has proposed some solutions to improve affordability, which would need congressional approval, such as tax credits for middle-class buyers and legislation to shore up homebuilding.
This story has been updated with additional details and context.
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