WASHINGTON, DC (CNN) Mortgage rates fell this week for the second straight week amid ongoing concerns about bank failures and uncertainty in financial markets.
The 30-year fixed-rate mortgage averaged 6.42% for the week ended March 23, up from 6.60% the week before, according to data from Freddie Mac released on Thursday. A year ago, the 30-year fixed rate was 4.42%.
“Mortgage rates have continued to fall amid concerns in financial markets over the past two weeks,” said Sam Khater, Freddie Mac’s chief economist.
This is good news for homebuyers, who are seeing a modest decline in interest rates and a stabilization in home prices.
“If mortgage rates continue to fall over the next few weeks, watch for a sustained recovery in the early weeks of the spring homebuying season,” he said.
The average mortgage rate is based on mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who are paying back 20% and have excellent credit ratings.
The Fed signals the end of rate hikes
After hitting a 2022 high of 7.08% in November, interest rates have trended lower. However, in February they began to climb again. Robust economic data suggested that the Federal Reserve was not over in its fight to cool the US economy and was likely to raise its interest rate benchmark further.
This happened on Wednesday. The Federal Reserve raised interest rates by a quarter point to further combat stubbornly high inflation while addressing recent risks to financial stability.
US 10-year Treasury yields rose ahead of Tuesday’s meeting as investors braced for the impact of the committee’s revised interest rate forecasts, said Hannah Jones, economic data analyst at Realtor.com. But interest rates fell on Wednesday on news from the Fed that its string of aggressive rate hikes may be ending.
The Fed reiterated its commitment to bring inflation down to its 2% target, but retracted its stance on further rate hikes. Fed Chair Jerome Powell said recent instability in the banking sector is likely to lead to tighter credit requirements, which could help inflation cool down.
“Depending on the magnitude of the impact of a tighter banking sector, Powell expressed a wait-and-see approach to further contractionary policy,” Jones said. “However, the federal funds rate is expected to remain elevated through the end of the year, meaning a higher interest rate environment will persist for now, including for home loans.”
The Fed doesn’t directly set the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates typically follow the 10-year Treasury yield, which moves based on a combination of anticipation of Fed action, what the Fed is actually doing, and investor reactions. When government bond yields rise, mortgage rates rise too; when they fall, mortgage rates tend to follow.
Home affordability is not improving
While a slight fall in interest rates last week boosted applications, home affordability deteriorated in February.
“Mortgage applications have increased for the third consecutive week, despite continued volatility in financial markets and the broader economy,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.
While rates remain much higher than a year ago, MBA forecasts a gradual decline, with the 30-year fixed rate falling to about 5.3% by the end of the year.
Affordability for homebuyers fell in February, according to the MBA, with the median monthly payment for those applying to buy a home rising nearly 5% to $2,061 from $1,964 in January.
The ongoing affordability challenges are weighing on buyers and sellers preparing for the spring housing market, Jones said.
“Any drop in mortgage rates is met with increased buyer demand as many eager homebuyers take advantage of the slightly lower cost of financing a home,” she said. “Home shoppers look for the optimal combination of prices and mortgage rates before entering the market.”
But, she added, elevated rates and high prices mean that for many potential buyers, that point isn’t in the market yet.
“With current prices and mortgage interest rates, the typical home payment for a house at the median price is 43% higher than it was a year ago,” Jones said.
