Mortgage rates jumped, but inflation slowdown suggests a dip coming soon

The U.S. average mortgage rate increased to its highest level since November this week, but new economic data showing a slower rate of inflation is a positive sign for Long Islanders looking to buy a home.

The average rate for a 30-year fixed mortgage was 6.96% for the week ending Thursday, according to mortgage giant Freddie Mac. That was up from 6.81% last week and marks the third straight week the average has risen.

A year ago, the average for a 30-year home loan was 5.51%.

But there are signs mortgage rates could fall in the coming weeks. Freddie Mac’s average takes into account mortgage applications from July 6 to July 12, so some of its data doesn’t account for the most recent changes in the mortgage market.

On Wednesday, the U.S. Labor Department said the Consumer Price Index increased by 3% over the past 12 months, which was smallest 12-month increase since March 2021. When inflation is high, mortgage rates typically rise.

The CPI report also serves as a positive sign for the Federal Reserve that its actions to tame inflation are working and it may not have to increase its benchmark rate as frequently in the coming months.

"Low inflation means low mortgage rates,” Lawrence Yun, chief economist at the National Association of Realtors, wrote in commentary published online Wednesday. “Therefore, decelerating consumer prices could steadily lift home sales and increase home production in a few months.”

With mortgage rates fluctuating as new economic data is released, borrowers that are shopping for a loan should make sure the quotes they receive are up to date, said Andrew Russell, founder and owner of mortgage broker RCG Mortgage in Hauppauge.

“Inflation has been somewhat tempered, so that’s a great thing for rates and [they] could start on the downswing,” Russell said.

 Rising mortgage rates make it harder for homebuyers to afford their monthly payments. A Long Islander buying a house for $600,000 with a down payment of 20% would have seen their monthly payment increase by about $450 at today's rate compared with the average at this time last year, excluding taxes and insurance. 

 While rates have risen, local home prices have remained at or near the same level as last year.

Steve Probst, branch manager at Fairway Independent Mortgage Corp. in Hauppauge, said that Wednesday’s inflation data was welcome news, but more data is needed to determine whether inflation will keep slowing. Until mortgage rates start falling consistently, local homeowners might still resist becoming buyers and trading in their historically low rates for one above 6%.

“Short-term I don’t think it really changes much,” he said. “I think we need to see more of a consistent trend. Once there’s a consistent trend that becomes obvious, people will start jumping on the train again and looking to buy.”

No adjustable rate advantage

Some variable-rate loan products that borrowers have turned to in the past for cheaper options are no longer providing relief. Casey Mauldin, chief lending officer and chief revenue officer at Jovia Financial Credit Union, said he couldn’t recall a time in his career when an adjustable-rate mortgage offered little to no advantage in rate to a 30-year fixed loan.

The average rate for a 5/1 ARM, in which the mortgage rate is fixed for the first five years and then adjusts once per year for the rest of the term, was 6.95% on Thursday, according to Mortgage News Daily. The website, which publishes its own index based on lender quotes, said the daily average for a 30-year fixed rate was 6.87% on Thursday, which was down from 7.12% on Monday.

Long Island homeowners who were able to buy or refinance their mortgages in the past few years are less likely to choose to move right now, Mauldin said, and might choose to remodel instead.

 About 9 in 10 U.S. homeowners with mortgages had a rate below 6% in late 2022, according to Redfin.

 Homeowners with low rates have been less likely to sell, which has led to a shortage of properties for sale on Long Island, Mauldin said. 

“When you have someone who’s got a 2%, 3% or 4% [rate], what is the likelihood they will get rid of that home? We’re seeing a lot more people staying in the home and making modifications to make it that dream home versus selling and getting rid of that low interest rate,” Mauldin said. “It’s a combination of high rates and low inventory levels that is causing dysfunction in the market.”

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.