Macro

US Mortgage Rates Dip to 7.02%, Still Double Early 2022 Levels

U.S. mortgage rates fall to 7.02%, offering slight relief amid high inflation and cautious Federal Reserve stance.

By Athena Xu

5/16, 12:19 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • US mortgage rates fell to 7.02% from 7.09%, marking the second consecutive week of declines amidst a challenging housing market.
  • Despite recent decreases, rates remain double early 2022 levels, significantly impacting homebuyer demand.
  • Continued evidence of inflation control is necessary for further reductions below the current near 7% rate levels.

Mortgage Rates Dip, Offering Relief

The average rate for a 30-year, fixed mortgage in the U.S. has decreased to 7.02% from 7.09% last week, according to Freddie Mac. This marks the second consecutive week of declines in mortgage rates, providing a slight reprieve for homebuyers in a market that has seen rates double since early 2022. Despite this decrease, rates remain significantly higher than they were a year ago, when the average was 6.39%. This persistent elevation in mortgage rates continues to challenge buyers, contributing to a cooling demand for homes as indicated by a Redfin Corp. measure.

Federal Reserve's Stance on Inflation

Federal Reserve Chair Jerome Powell emphasized the need for more evidence that higher rates are effectively curbing inflation pressures. Although there's been a recent cooling in underlying U.S. inflation for the first time in six months, the Fed maintains a cautious approach towards rate cuts. The central bank's strategy aims to ensure inflation slows sustainably towards its 2% target before considering significant changes to interest rates. This stance suggests that mortgage rates may not see substantial reductions until there's persistent evidence of inflation control.

Housing Market Dynamics

The slight easing of mortgage rates comes amid a broader context of high home prices and low supply, which has been a significant barrier for many prospective buyers. The U.S. housing market is navigating through these challenges, with the recent dip in rates offering a glimmer of hope. However, the market still faces hurdles such as a significant shortage of housing units and potential regulatory changes affecting construction costs. The dynamics of single-family homebuilding and permits reflect the ongoing demand for new construction amidst fluctuating mortgage rates.

Comparative Global Market Analysis

When comparing the U.S. housing market to global counterparts, such as Singapore, it's evident that high interest rates and a surplus of property launches have similarly dampened market sentiment. However, the potential for Federal Reserve rate cuts and the impact of increased housing inventory in the U.S. provide a nuanced perspective on the interplay between mortgage rates, regulatory changes, and market dynamics. Despite an increase in active home listings, the market remains below pre-pandemic levels, indicating a shift towards a more buyer-friendly environment that still grapples with affordability and supply constraints.

Street Views

  • Sam Khater, Freddie Mac (Neutral on the US housing market):

    "The decrease in rates, albeit small, may provide a bit more wiggle room in the budgets of prospective homebuyers."

  • Jiayi Xu, Realtor.com (Neutral on mortgage rates):

    "Despite the halt in the upward trajectory of mortgage rates, they remain stubbornly close to 7%... To see mortgage rates dip further below 7%, persistent evidence showing inflation back on the path to 2% will be necessary."