Mortgage Rate News

Clock with plants growing from coins

June was a rollercoaster for would-be homeowners seeking a mortgage. The 75-basis point hike by the Federal Reserve was the largest increase since 1994. The 30-year mortgage rate exceeded 6% by mid-month before finishing June at 5.79%.

The Federal Reserve is driving up rates to cool the market. Last year, equities rose at unprecedented rates, which is not good for the overall economy

Beginning in July, Freddie Mac, who buys mortgages on the secondary market, reported that mortgage rates had declined rapidly over the course of the week. This was good news for many people waiting to see where interest rates would settle. They reported that the average interest rate on a 30 year fixed rate loan fell from 5.7% to 5.3%.

Are Rates Rising or Falling?

However, the average 30-year fixed mortgage interest rate today is at 5.75%, which shows an increase of 14 basis points just in the last week! This is all very confusing for anxious homebuyers. Are interest rates going up or down?

The jobs report on the US employment situation revealed that the US economy added 372,000 new jobs in June. Good news right? Actually, no. We are in a strange climate where growth is exactly why the FED keeps raising their rates. This is why interest rates have begun to climb again.

According to Black Knight who reports on mortgage activity, rate lock activity fell for the third straight month in June. Economists don’t expect mortgage rates to adjust down until inflation and consumer prices fall.

Who Controls Mortgage Rates?

While the FED doesn’t control interest rates, lenders are generally pro-active in expecting an increase and raise their rates accordingly. This is why rates can seem to adjust up and then, down.

The housing market is being controlled by the FED's effort to reduce demand. If affordability isn’t already a factor in slowing demand, reducing borrowing power is like putting the brakes on market activity.

The short-term rate, directly controlled by the FED, has risen by 175 basis points. However, the 30-year fixed rate mortgage has risen by nearly 300 basis points this year. Like everything else we are experiencing in the 2022's, prices are a factor of demand and companies are charging more because they can.

“It’s painful that on the same $300,000 mortgage, the monthly payment rose to $1,800 today from $1,265 in December and consequently, will shrink the buyer pool,” stated Lawrence Yun, chief economist at the National Association of Realtors (NAR). 

Historical Market Activity

According to Yun, “Sales could fall even further with some inventory sitting on the market for more than a month like in the pre-pandemic days.” We often forget that in normal years, homes remained on the market for over a month. We are short-sighted in how we view market activity.

When we look at interest rates over the decades since 1970, the average rate was just below 8%. However, the last few years have seen interest rates drop to almost zero. We forget that this was done to boost the economy against the ramifications of shelter in place orders and COVID.

The 30-year rate is currently hovering just below 6%, which is still historically low. The refi market is suffering the most, and the drop in mortgage rate lock activity shows how the market is struggling to find normal.  

Average credit scores rose to 723 in June, which shows how stringent the underwriting process is today when compared to the easy loans made available that led to the 2008 crash. It is important to keep in mind that this is a slowing down of the hyperactivity of last year, and not a real estate bubble.

Contact me today for more information on the Lake Tahoe real estate market.