Regulation

30-Year Mortgage Rates Drop to 6.84% as Inflation Slows

Published

6 months ago

May 16, 2024

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Mortgage rates for 30-year fixed loans have reduced to 6. 84%, the lowest level in seven weeks, which is a bit of relief for those who are looking to buy homes. This decline, reported on Wednesday, is the consequence of a drop from the last rate that was 7. 09%.

Freddie Mac says this is the fifth week in a row that rates have been over 7%, although the current decrease gives a little hope for those who are trying to get financing.

The decrease in rates was triggered by the hope that central interest rates might be cut by early summer. The major lenders such as Barclays, HSBC and TSB have already announced the cuts in fixed-rate mortgage deals which has made it clear that other lenders will do so too.

Anticipated Mortgage Rate Cuts and Market Reactions

Financial professionals believe that there will be more cuts in the mortgage rates due to the recent decrease in swap rates which are a significant indicator for mortgage pricing. Mark Harris from SPF Private Clients said that these rate cuts are inspiring for the borrowers and are probably going to boost housing market activity.

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The average 30-year fixed mortgage rate falls to 6.99%

First sub 7.00% reading since April 4, 2024

Spread: 264 bps pic.twitter.com/8IMc3NpToO

— Lance Lambert (@NewsLambert) May 15, 2024

Adrian Anderson of Anderson Harris also stressed that the absence of buyers who have been waiting for cheaper mortgage rates will result in a burst of the market activity.

The Bank of England, in the beginning of this month, did not change interest rates and they remained at 5. 25% but he suggested a possible rate cut in the summer.

Governor Andrew Bailey was positive about the economic future, but he emphasized that more evidence of declining inflation is needed before any rate cuts will be made.

Inflation and Its Impact on Mortgage Rates

In the US, inflation decelerated more than expected in April which led to a lot of speculations that the Federal Reserve will cut rates sooner than it was thought. The traders now are forecasting a potential rate cut in September.

This view has had a positive impact on the UK market, which is now starting to consider the possibility of rate cuts.

Although these changes have taken place, mortgage rates are still high in comparison to early 2022 when they were about half of the present levels. This continuous increase in the rates of interest is still affecting the housing market and it can be seen from a recent Redfin Corp. measure of homebuyer demand which reached its lowest level in two months.

Housing Market Dynamics and Buyer Behavior

The recent drop in mortgage rates is a kind of budgetary relief for people who are thinking about buying their first home. Nevertheless, the rates are still about 7% which means that affordability is a problem for many buyers. Lisa Sturtevant, the main economist at Bright MLS pointed out that high home prices and competition with cash buyers are still major obstacles.

The market responses to the previous dips which were below 7% have been different. For example, in November 2022, a dip led to the growth of mortgage applications by 4%, while in July 2023 similar decrease caused only a rise of about 1.3% drop in applications. This inconsistency highlights the fact that we still face tough times in the housing market, where there is a low inventory and high prices.

Economists such as Sam Khater from Freddie Mac indicate that the little decrease in rates could give some leeway to the homebuyers’ budgets. Nevertheless, the continuous proof of inflation getting closer to the target of 2% is needed in order for the rates to fall more.