Mortgage rates have risen for the first time since May, with the national average for a 30-year fixed-rate mortgage increasing to 6.95% from 6.86% last week. This marks the end of a four-week decline and brings rates back to mid-June levels.
The national average for a 30-year fixed-rate mortgage rose to 6.95% from 6.86% a week prior, according to Freddie Mac. This increase ends a four-week streak of declining rates and brings them back to their June levels. A year ago, the average rate was 6.81%. The 15-year fixed-rate mortgage also saw an increase, climbing to 6.25% from 6.16% last week.
With mortgage rates hovering around 7% for the past year, many homeowners with lower-rate mortgages taken out during or before the COVID-19 pandemic have been reluctant to list their homes. This has contributed to a housing inventory shortage, driving prices higher and creating affordability issues.
Lawrence Yun, chief economist at the National Association of Realtors, noted that despite the high rates, there is potential for the inventory shortage to ease. He mentioned that life-changing circumstances such as new births, school changes, retirements, and deaths could prompt more homeowners to list their properties.
The number of homes available for sale increased nearly 20% annually to 1.28 million in May, marking the highest inventory level in almost three years. However, this rise in inventory has not significantly boosted homebuyer activity. The Mortgage Bankers Association's latest Market Composite Index, which tracks mortgage loan application volume, increased by less than a percentage point last week and remained 13% lower than the same week a year earlier.
High home prices continue to be a barrier for many potential buyers. The median sales price reached $419,300 in May, and existing home sales dropped 0.7% during the same month. At the current average rate, a homebuyer would pay approximately $2,220 monthly on a median-priced home with a 20% down payment, nearly $800 more than when rates were around 3% in 2021.
Economists predict that mortgage rates may begin to ease in the coming weeks if bond yields move lower in anticipation of a Federal Reserve rate cut. While the current report is not what homebuyers were hoping for, there is optimism that rates could fall sooner than expected. As more inventory enters the market, home prices are expected to stabilize, potentially improving affordability for buyers.
"We are still expecting rates to moderately decrease in the second half of the year and given additional inventory, price growth should temper, boding well for interested homebuyers," said Sam Khater, Freddie Mac’s chief economist.
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