This week, the average rate on a 30-year mortgage dipped once more, continuing a positive trend for prospective homebuyers amid record-high home prices. According to mortgage buyer Freddie Mac, the rate decreased to 6.86% from last week’s 6.87%. A year ago, the rate was 6.71%.
The 30-year fixed-rate mortgage continues to trend down, hitting the lowest level in almost three months,
Sam Khater, Freddie Mac’s chief economist
This marks the fourth consecutive weekly decline in the rate, which has generally hovered around 7% this year. Home sales have been declining in recent months, as the high rates—which can add hundreds of dollars to monthly borrowing costs—have discouraged many potential homebuyers.
I thought that we would actually see a recovery this spring —- we are not seeing it.
Lawrence Yun, NAR’s chief economist.
In May, sales of previously occupied U.S. homes declined for the third consecutive month. According to the National Association of Realtors, existing home sales decreased by 0.7% last month, reaching a seasonally adjusted annual rate of 4.11 million.
Compared to May of last year, sales dropped by 2.8%. Despite this decline, the latest sales figures slightly exceeded economists’ expectations of a 4.07 million pace, as reported by FactSet.
Additionally, sales of newly built single-family homes dropped by 7.7% in April and 16.5% in May compared to the previous year.
Home Prices Soar Amid Four-Year High Property Supply Despite Sales Slump
Despite the decline in sales, home prices continued to rise compared to the previous year for the 11th consecutive month. The national median sales price reached an all-time high of $419,300, a 5.8% increase from last year, and a 51% increase from five years ago, based on records dating back to 1999.
Home prices rose as sales slowed, coinciding with the highest level of properties on the market in four years.
It’s somewhat of a strange phenomena. We had low home sales activity, prices are hitting record highs and homes look like they’re still getting multiple offers.
Lawrence Yun, NAR’s chief economist.
Since 2022, the U.S. housing market has faced challenges, starting with the rise in mortgage rates from pandemic lows. Last year, existing home sales plummeted to nearly a 30-year low, coinciding with a sharp increase in the average rate on a 30-year mortgage to 7.79%, the highest in 23 years, as reported by Freddie Mac.
Several factors influence mortgage rates, such as the bond market’s response to the Federal Reserve’s interest rate policy and fluctuations in the 10-year Treasury yield, which lenders use as a benchmark for setting home loan rates.
Earlier this month, Federal Reserve officials noted that inflation has neared its target of 2% in recent months. They also indicated plans to reduce their benchmark interest rate at least once this year. Previously, the central bank had forecast up to three rate cuts by 2024, heightening expectations in the housing market for additional easing of mortgage rates by now.
First-Time Homebuyers Struggle as Mortgage Rates Persist: Share Drops to 31%, Up from Last Year’s 28%
First-time homebuyers without home equity for down payments face ongoing challenges entering the housing market. Last month, they comprised 31% of total home sales, a decrease from 33% in April but an increase from 28% in May last year. Historically, they have represented 40% of all sales.
According to the NAR, homebuyers able to pay all cash and avoid mortgage rates made up 28% of sales last month, an increase from 25% in May last year. Additionally, 16% of homes sold in May were purchased by individual investors or those buying a second home, up from 15% a year earlier.
