Mortgage rates fall to 5.3%, partly reversing June surge
The average rate of a 30-year fixed mortgage fell to 5.3% this week, shifting into reverse a surge that had lifted the average to its highest level in more than a decade last month.
The one-week decline of 0.4 percentage points was the largest drop since 2008, according to mortgage giant Freddie Mac. Three weeks ago, the average rate had risen the most in a single week since 1987.
The decline in rates offers some relief to potential Long Island homebuyers, who have seen rates soar from 3.22% to start the year, according to the weekly survey of lenders. Higher rates have made homes less affordable for those looking to purchase, increasing the amount prospective homeowners would pay each month by hundreds of dollars.
U.S. home prices are expected to increase, though at a slower pace this year than in 2021, despite the recent drop in rates, Sam Khater, Freddie Mac’s chief economist, wrote in commentary published Thursday.
“While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown," he wrote.
Taylor Marr, deputy chief economist at the national real estate brokerage Redfin, said he believes last month’s rapid rise in rates, was the anomaly, not this week’s dip. The average rate for a 30-year fixed mortgage jumped from 5.23% on June 9 to 5.78% a week later after the Bureau of Labor Statistics said the pace of inflation hit a 40-year high in May.
“As the market has essentially digested all of the latest economic data … all of those things have sort of culminated in returning rates back to essentially where they were a month ago,” Marr said. “I view that shock that ensued a month ago as more of a blip and not indicative of the longer-term trend for mortgage rates.”
Marr said he expects that rates, as measured by the Freddie Mac survey, are likely to stabilize around their current level, rather than at around 6% through the end of the year but could continue to be volatile in the short term.
“Recession fears, overall, are sort of anchoring how high rates go,” he said.
The Federal Reserve raised its benchmark interest rate last month to tame fast-rising inflation, but increasing short-term borrowing costs on consumers and businesses could lead the economy to enter a recession.
Mortgage rates tend to move in the same direction as the U.S. 10-year Treasury yield, which fell to its lowest point since the beginning of June this week before rising in the past few days. In times of high market volatility, there is greater demand for U.S. government debt, which is considered a safe investment. As demand drives up bond prices, yields fall.
Mortgage rates tend to rise faster than they fall, so the latest move downward came as a surprise, said Andrew Russell, owner and founder of RCG Mortgage, a mortgage broker in Hauppauge.
“This is the first time in my career that I’ve seen rates get better so quick,” he said.
Some lenders might have been too conservative in raising rates last month and lowered rates to attract more borrowers, he said. The recent downward trend has allowed Russell to inform clients that they will qualify for a lower rate for their home purchase.
Borrowers who have already locked in their mortgage rate can receive a lower rate if their lender offers a float-down option, which allows them to switch if mortgage rates drop by a certain amount during a defined period of time. Lenders charge a fee for the option, and it provides greater savings to buyers who plan to live in their home for a long time, who would benefit more from the lower rate.
“Always try to, as a consumer, work with a lender who offers a float-down in this volatile rate market,” Russell said. “If and when the rates improve, which I think they’ll still improve, you get to relock.”
Correction: A previous version of this story misspelled the surname of Andrew Russell, owner and founder of RCG Mortgage.
New filing in Gilgo case ... 20 new license plate readers ... Blacksmithing on LI ... Get the latest news and more great videos at NewsdayTV
This is a modal window.
New filing in Gilgo case ... 20 new license plate readers ... Blacksmithing on LI ... Get the latest news and more great videos at NewsdayTV