Mortgage rates paused last week, falling slightly after seven straight weeks of increases.
The 30-year fixed-rate mortgage averaged 5.10% in the week ending April 28, down from 5.11% the previous week, according to Freddie Mac. But it’s still much higher than the rate this time last year, when the 30-year fixed rate averaged 2.98%.
“The combination of rapidly growing house prices and the fastest rising mortgage rates in over forty years is finally affecting buying demand,” said Sam Khater, chief economist at Freddie Mac.
Khater said potential buyers are coping with the rising cost of buying a home by shifting their home search away from coastal towns and into more affordable suburbs.
Some buyers, he said, are turning to variable-rate mortgages, in which the interest rate resets after a period of time. Last week, the five-year variable rate mortgage tracked by Freddie Mac averaged 3.78%.
“We expect lower demand to slow house price growth to a more sustainable pace later this year,” Khater said.
The pace of rate growth stalled last week after the 10-year Treasury fell slightly, said George Ratiu, head of economic research at Realtor.com. US Treasuries – specifically 10-year Treasuries – are a proxy for fixed-rate mortgages. When 10-year Treasury yields fall, mortgage rates also tend to move in that direction.
“Treasury yield fell as investors worried about China’s worsening Covid outbreak and large-scale lockdowns,” he said. In addition, he said, commodity prices are taking another shock due to supply chain disruptions from the war in Ukraine.
“Inflation is likely to run at a rapid pace for longer than expected, which will keep pressure on medium-term mortgage rates,” Ratiu said.
There are some signs that higher interest rates are beginning to weigh on the housing market.
Mortgage applications fell 8.3% last week from the previous week, according to the Mortgage Bankers Association. Mortgage applications to buy a home are down 17% from a year ago and applications to refinance a loan are down 71% from the same period last year.
Additionally, the number of contracts signed to buy a home fell in March, marking five consecutive months of declines, according to the National Association of Realtors, as low inventory and higher costs to get into a home caused buyers to the gap.
But with fewer buyers in the market, home prices are expected to fall in many areas.
“Markets hit record highs in early spring, with the next few months expected to see a moderation in the pace of appreciation followed by a flattening in the fall,” Ratiu said.
“The good news is that for buyers frustrated by last year’s frenetic market, the shift to a more normal landscape portends greater home selection, a slower pace of sales and better prices.”
However, cooling prices do not necessarily mean that the cost of home ownership will drop.
Homebuyer affordability declined in March, with the national median monthly mortgage payment rising 5% to $1,736 from $1,653 in February, according to the MBA.
That gave a mixed start to the usually active spring homebuying season, said Edward Seiler, associate vice president of MBA housing economics and executive director of the Research Institute for Housing America.
“The healthy job market and robust wage gains fueled demand across the country in March, but rapid home price growth and soaring mortgage rates last month dampened purchase demand activity” , did he declare.
A typical borrower’s principal and interest payment was $387 more in March than a year earlier, Seiler said.
“Rapid price appreciation, sky-high inflation, low inventory and mortgage rates now two percentage points higher than last year are all headwinds for the housing market in the months ahead. especially for first-time buyers,” Seiler said.