Rates Go Up, Buyers Show Up
For 30-year fixed-rate mortgages that conform to loan limits of up to $832,750, the average contract interest rate rose to 6.69%, up from 6.65%, the highest rate since last August. Points, which include the origination fee, fell to 0.62 from 0.67 for loans requiring a 20% down payment.
Overall mortgage demand climbed 1.9% from the previous week, based on the Mortgage Bankers Association's seasonally adjusted index.
The MBA's senior vice president and chief economist, Mike Fratantoni, noted, "Growing home inventory in many markets is supporting more purchase activity."
According to CNBC's Housing Market Survey, real estate agents indicate that sellers are increasingly open to reducing their asking prices.
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Even as mortgage rates have climbed, the increase in purchase applications indicates that buyers are adjusting to current conditions. The combination of more homes on the market and sellers becoming more flexible on price is helping to offset the affordability squeeze. Additionally, the year-over-year comparison shows that demand is essentially holding steady, indicating that many buyers are not deterred by rate fluctuations. The refinance market, however, remains subdued, as homeowners are less inclined to refinance when rates are near recent highs.
The willingness of sellers to reduce asking prices, as noted in the CNBC survey, has been a key factor in maintaining purchase activity. Combined with an increase in available homes, buyers are finding more opportunities to negotiate, which helps offset the impact of higher borrowing costs. This trend suggests that the market is gradually rebalancing, even as rates remain elevated.
Why Mortgage Rates Keep Climbing
During the same period last year, the average 30-year fixed mortgage rate was only 15 basis points above the current figure.
"Incoming data showed that inflation dropped in June, but with oil prices spiking again, that improvement seems unlikely to continue in July data, and mortgage rates are likely to remain higher as a result," Fratantoni said.
At the start of this week, mortgage rates increased further, reaching the same peak observed in mid-May, as per a different survey conducted by Mortgage News Daily. Renewed tensions in the Iran conflict drove mortgage rates higher, overriding the impact of recent inflation data that came in below expectations.
Mortgage News Daily's chief operating officer, Matthew Graham, wrote, "For those who want to keep the analysis simple, fuel prices do a good enough job explaining the move. In fact, August gasoline futures also just hit their May 19th highs this week - perfectly aligning with the round trip in rates."
The persistence of high mortgage rates is closely tied to broader economic conditions. Oil price spikes have fueled inflation concerns, undermining the positive June inflation data. As a result, financial markets anticipate that the Federal Reserve will maintain its cautious stance, keeping long-term interest rates elevated. This environment poses challenges for both buyers and sellers, yet the housing market continues to show resilience.
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