Rates, inventory and prices hitting the trifecta for potential homebuyers - Movement Mortgage Blog

Economic volatility to start the year pushed mortgage interest rates rapidly upward. Paired with skyrocketing home prices and extremely low inventory, many potential homebuyers quite frankly couldn’t afford to buy. Well, it seems that trend is changing.

The latest 30-year fixed-rate mortgage average for Freddie Mac shows we dipped back below 5%, hitting 4.99% for the week. Freddie Mac’s economists said in their weekly statement, “Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.” 

One main reason why the Fed’s consecutive 75 basis point rate hikes did not push mortgage rates upward is because the long-term bond market had already priced that in, so there was no knee-jerk reaction. Typically mortgage interest rates follow the trajectory of the 10-year Treasury note bond yield, which dipped back below 2.7% just before the July jobs report was released. While that did help push mortgage rates lower, it widened the spread between the 10- and 2-year note yields which have remained inverted for a majority of the last 5 weeks.



It is expected that the Fed will continue to raise rates in the coming months because many monetary policy leaders with the Fed have repeatedly stated they do not believe the United States’ economy is in a recession. That is despite the fact that we are in a technical recession due to negative GDP growth for two consecutive quarters. Speaking to CNBC, St. Louis Fed President James Bullard said the Federal Open Market Committee may have to take the federal funds rate to 3.75%-4% by the end of this year (currently, the range sits at 2.25%-2.5%). But Bullard added he doesn’t believe the FOMC will take the U.S. into a recession to do it. 

The other positive for homebuyers is the slowdown in home price growth. Black Knight’s latest report shows that home prices cooled at the fastest pace on record in June. The group’s data shows that the price growth percentage dropped from 19.3% to 17.3%. Black Knight’s President of Data and Analytics said in the statement, “The slowdown was broad-based among the top 50 markets at the metro level, with some areas experiencing even more pronounced cooling. In fact, 25% of major U.S. markets saw growth slow by three percentage points in June, with four decelerating by four or more points in that month alone.”

The other piece of the puzzle, inventory, has struggled for years and was only worsened by the extreme demand caused by urban flight during the pandemic. But a recent report by Redfin shows that, for the first time since July 2019, we saw an annual increase in the number of homes for sale. It’s not much, but the 2% increase in inventory shown in Redfin’s report is anecdotally allowing buyers to have less intense competition than they saw over the last 24 months. 



July’s jobs report showed that so far, the Fed’s moves have not made a significant impact on employment. The Labor Department’s report shows 528,000 nonfarm payroll jobs were added in July with the unemployment rate moving down to 3.5% from 3.6%. Average hourly earnings also went up 5.2% year-over-year. The market reacted negatively to this report, however, as it gives fuel for another round of strong rate hikes by the Fed. 

The report was released just a few days after the New York Fed’s report that American household debt has climbed past $16 trillion for the first time ever. “Americans are borrowing more, but a big part of the increased borrowing is attributable to higher prices,” the New York Fed said in a blog post accompanying the release. Mortgages were a large contributor to the debt, with balances rising by $207 billion to $11.4 trillion overall (a 1.9% gain).

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Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.