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Rates for home loans slipped lower this week as once-rising inflation came to a standstill, giving home shoppers a little financial relief from the sticker shock of record-high home prices this summer.
The 30-year, fixed-rate mortgage averaged 5.13% for the week ending August 18, down from 5.22% in the previous week, according to Freddie Mac. A year ago, the average rate for the popular mortgage product was 2.86%.
The average 15-year, fixed-rate mortgage was 4.55%, versus 4.59% last week. Last year at this time, it averaged 2.16%.
The average 5/1 adjustable-rate mortgage (ARM) averaged 4.39%, down from 4.43% last week and 2.43% a year ago. ARMs have become more popular this year as their rates remain much lower than those on fixed-rate mortgages.
Keep in mind that these rates don’t include fees and other costs associated with obtaining home loans.
Related: Compare Current Mortgage Rates
Mortgage Rates Forecast For the Rest of 2022
Mortgage rates significantly jumped in the spring partly due to rising inflation, but have more recently been driven down. That’s partly because the Federal Reserve took repeated action to rein in inflation in an attempt to address economic concerns, though some economists fear such actions could become too aggressive and inadvertently tank the economy.
Last week, the Labor Department reported that the consumer price index (CPI) was relatively unchanged in July compared to June, and mortgage rates subsequently declined this week.
“Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” said Freddie Mac in its latest mortgage rates release.
Most economists expect the 30-year, fixed-mortgage rate to continue bobbing between 5% and 6% throughout the rest of the year.
Homebuyers Are Backing Away From Sales
While mortgage rates appear to be leveling off a bit, economic tensions and uncertainty have spilled over into the housing market. Many Americans are eager to buy a home, but most are nervous about buying in what appears to be an overheated market as home prices continue to climb every month despite that sales have dropped. These homebuyer concerns are amplified as some economists are worried we could be headed for a recession.
Applications for purchase mortgages sank again, by 2.3% for the week ending August 12 compared to the previous week, according to Mortgage Bankers Association (MBA). Housing costs were becoming so overheated as mortgage rates spiked in the spring that many home shoppers could no longer afford to buy and home sales came to a halt by the summer.
“The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability,” said Freddie Mac. “As a result, over the rest of the year purchase demand likely will continue to drag, supply will modestly increase, and home price growth will decelerate.”
Where Are Home Prices Headed?
Home prices on a monthly basis have not significantly declined yet, but sales have, which means sellers will likely have to start lowering their top-dollar offers to attract more buyers again.
“If home price growth slows more significantly and mortgage rates move lower, we might see some purchase activity return later in the year,” MBA economist Joel Kan said in a press release.
On Thursday, the National Association of Realtors (NAR) said the median existing home price fell $10,000 from June to July. It was the first month-to-month decline this year after hitting record-highs every month. But experts say that may reflect a normal seasonal downturn rather than the start of something more serious.
The July median home price, at $403,800, is still increasing on a year-over-year basis—the current streak being125 consecutive months, making it the longest record in NAR’s recorded history. However, total sales of previously-owned homes sagged for the sixth straight month in July.
“We’re witnessing a housing recession in terms of declining home sales and home building,” said NAR Chief Economist Lawrence Yun, in a press release. “However, it’s not a recession in home prices. Inventory remains tight and prices continue to rise nationally with nearly 40% of homes still commanding the full list price.”
Ali Wolf, chief economist for real estate analytics firm Zonda, says she expects the housing market to “stay on the softer side heading into 2023.”
“We think the economic uncertainty and higher borrowing costs will contribute to declining sales,” she says.
Still, Wolf says there’s plenty of buyer demand on the sidelines, willing to dip a toe into the market when the conditions—meaning lower rates, better home builder or seller incentives and seller price reductions—are right.
Is Now a Good Time to Buy a Home?
Julie Chang, a real estate agent with Pacific Sotheby’s International Realty in San Diego, jokes that many buyers “smell blood in the water.” After nearly two years of buyers having to accept any conditions sellers demanded, there’s been a slight enough shift in the housing market that buyers at least have some time to think about a deal, which is a positive. Still, Chang says “there’s just a lot of anxiety on both sides.”
“People still recognize that the market is really high,” she says. “Homes don’t really feel like a deal.”
Chang counsels buyers to think hard about whether they’ll want to hold a home for several years. If the housing market is still at the top of the current cycle, prices might decline from here, she says. But there are some buyers with what Chang calls “analysis paralysis.”
“This is a very personal decision,” she says. “Sometimes you just have to go with your gut.”