In the first week of May, the construction and real estate industry witnessed a notable shift in the mortgage market. As Freddie Mac’s Primary Mortgage Market Survey indicated, the 30-year fixed-rate mortgage (FRM) posted an average of 6.39%. This figure represents a minor downward adjustment of 40 basis points from the previous week. However, it’s crucial to note that the rates are significantly above the same period last year, with a leap exceeding one percentage point from the 5.27% average of 2022.
–
Sam Khater, Freddie Mac’s chief economist, explains this minor decrease against recent upheavals in the banking industry and insights from the Federal Reserve about their policy direction. Khater notes that despite the mid-6% range of current mortgage rates, the residential housing market’s typical spring fervor remains unhampered. Nevertheless, limited inventory continues to pose a significant hurdle to home affordability, even as potential buyers gradually adjust to the current rate environment.
–
Meanwhile, the 15-year FRM averaged 5.76%, a dip from the preceding week’s 5.71% but a considerable rise from the 4.53% of the previous year.
–
Amidst these softer rates, the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey reported a 6.3% surge in mortgage rate applications for the week ending May 5. This uptick, coupled with a seasonally adjusted purchase index increase of 5% from the previous week, shows a positive response to the slight rate drop. However, on an unadjusted basis, the purchase index was down by 32% compared to the same week in 2022.
–
Joel Kan, the MBA’s vice president, and deputy chief economist, connects the increased applications to the Federal Reserve’s potential freeze on the federal funds rate, coupled with an expected slowdown in inflation and tightening financial conditions. Though week-to-week lower rates have boosted potential buyers, limited housing inventory continues to pose a challenge.
–
Refinancing activity also saw a boost, reaching levels unseen since 2022. Kan cautions that only a small segment of borrowers will find refinancing beneficial at the current rates.
Regarding specific mortgage types, the adjustable-rate mortgage’s share of total applications shrunk to 6.8%, and the FHA’s share also decreased to 12.1%. However, the VA share of applications experienced growth, climbing to 12.9% from 11.3% the week before.
–
As we navigate through the year, observing how these patterns evolve and what it means for the residential housing market will be intriguing. Stay tuned to our BIGG Newsletter for the latest insights and updates.
–
