Mortgage rates rose for the seventh consecutive week and have averaged above 5% for the last two weeks. Freddie Mac’s 30-year fixed-rate mortgage average bumped up to 5.11% in the group’s latest survey, up from 5.00% the week prior.
Freddie Mac’s economists said in their report, “While springtime is typically the busiest homebuying season, the upswing in rates has caused some volatility in demand. It continues to be a seller’s market, but buyers who remain interested in purchasing a home may find that competition has moderately softened.”
Softening competition could help keep home prices from rising as quickly and start to balance out the wild volatility in the housing market over the last few months. But there are still many potential homebuyers who are very concerned about rapidly rising interest rates. There could be some good news on that end, too.
It’s hard to put a 5% average mortgage rate into perspective when over the last two years interest rates were below 3%. But 5% was fairly regular from 2009-2011 and considered significantly low in a historical context (buying a home in the mid-80s to early 90s meant 10-13% interest rates on average). Furthermore, the Mortgage Bankers Association President, Bob Broeksmit, seems to believe we’re about to hit a plateau.
“We think that the rates are not going to go much above 5%,” Broeksmit said in an interview with Bloomberg. “It’s really a necessary step as we have seen really unsustainable home price appreciation in the high teens year over year for a couple years running. So there is a need to cool things down a little bit in the market with such an imbalance of supply and demand.”
Broeksmit notes part of his reasoning for believing we will hit a rate plateau is that the economy is already expecting strong moves by the Federal Reserve and has baked that into the current pricing. The Federal Open Market Committee does not meet again until May, but Fed Chair Jerome Powell says that taming inflation is “absolutely essential.” Speaking on an IMF panel recently, Powell said the central bank is committed to raising rates “expeditiously” to bring down inflation. It’s expected the FOMC will raise the federal funds rate by 50 basis points at its next meeting, if not sooner.
That aggressive approach by the Fed causes a ripple effect in the housing industry and has pushed Fannie Mae’s economists to cut their origination forecast for 2022 and 2023. Fannie Mae’s economists are also predicting a recession in 2023 with its GDP forecast moving from 2.2% growth to a decline of 0.1%.
Fannie Mae Senior Vice President and Chief Economist, Doug Duncan, said in a statement, “Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown. Consequently, we expect home sales, house prices, and mortgage volumes to cool over the next two years.”
“Data from U.S. economic history suggest that successfully negotiating a ‘soft landing’ requires monetary tightening to be pre-emptive rather than responsive,” Duncan said. “As such, we’ve updated our 2023 forecast to include a modest recession, but one that we do not expect to be similar in magnitude or duration to the recession of 2008.”