The Perfect Time to Buy: Mortgage Rates Drop, Inflation Falls, and the Market Trends Up

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Mortgage rates dipped slightly for the second consecutive week as progress on inflation is creating less volatility. Freddie Mac reported This Week in Real Estate that the 30-year fixed-rate mortgage averaged 6.35%, down 4 basis points from the prior week. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) climbed by 4.9% in April year-over-year, slowing for the tenth consecutive month and hitting its lowest level in two years. The volume of mortgage applications responded favorably to the decline in interest rates, which reacted positively to the cooling CPI data, leading the chairman of the Federal Reserve to suggest a potential end to a historic policy tightening campaign. Below are a few newsworthy events from the second week of May that influence our business: 

Mortgage Application Volume Boosted by Fed Comments. The volume of mortgage applications increased last week for both home purchases and refinancing. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, increased 6.3 percent on a seasonally adjusted basis and was 7 percent higher on an unadjusted basis compared with the previous week. The seasonally adjusted Purchase Index was up 5 percent. Before adjustment, that index was 5.3 percent higher for the week. The Refinance Index rose by 10 percent. Joel Kan, MBA’s Vice President and Deputy Chief Economist said, “Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth. Read the full story here.

Mortgage Rates Are Steadily Edging Downward. The average for the 30-year fixed-rate mortgage fell slightly to 6.35% this week, Freddie Mac reported Thursday. “This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year,” says Sam Khater, Freddie Mac’s chief economist. “While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023,” Khater notes. “This should bode well for the trajectory of mortgage rates over the long term.” During the 2023 REALTORS Legislative Meetings in Washington, D.C., this week, Lawrence Yun, chief economist for the National Association of REALTORS, predicted that mortgage rates likely will fall closer to 6% this year and below 6% in 2024. Read the full story here.

Inflation Falls Below 5% For First Time in Two Years. Consumer prices in April saw the smallest year-over-year gain since April 2021. This marked the tenth consecutive month of deceleration and the first time the rate has fallen below 5% in two years. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 4.9% in April, following a 5.0% increase in March. While the shelter index (housing inflation) experienced its smallest monthly gain since January 2022, it continued to be the largest contributor to the total increase, accounting for over 60% of the increase in all items less food and energy. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt the housing supply by increasing the cost of AD&C financing.  Read the full story here.

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