Mortgage rates tick up after dropping last week

By Anna Bahney, CNN

Washington, DC (CNN) — US mortgage rates moved higher this week following the Federal Reserve’s rate hike, after dropping last week.

The 30-year fixed-rate mortgage averaged 6.81% in the week ending July 27, up from 6.78% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.30%.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

“Mortgage rates inched up slightly after a significant decline last week,” said Sam Khater, Freddie Mac’s chief economist.

Higher interest rates continue to dampen activity in the interest-rate sensitive sector of housing, he said. Existing home sales and sales of newly constructed homes were down in June as higher rates have been keeping inventory low, prices higher and hurting affordability.

“However, overall US consumer confidence is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July,” Khater said. “Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market.”

Inflation still above target level

The Fed raised its benchmark lending rate by a quarter point Wednesday, lifting interest rates to their highest level in 22 years in an ongoing battle to cool the economy and bring down inflation.

While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

“The most recent inflation and employment data showed slowing price growth and more moderate hiring, but still-robust consumer spending kept inflation elevated above the 2% target,” said Hannah Jones, economic data analyst at Realtor.com.

“The committee’s statement asserts their continued commitment to bringing down inflation while acknowledging that the full impact of the rate hikes and credit tightening has not yet been realized,” said Jones.

“[Fed Chair Jerome] Powell emphasized a data-informed approach to future rate hikes, citing that restoring price stability will likely ‘require a period of below-trend growth and some softening of labor market conditions,’” she said.

Home prices remain elevated

While the median list price for a home fell in June compared to a year ago, the cost of financing a median-priced US home, assuming a 20% down payment, rose 12.4% in the same time frame, according to Realtor.com.

“Many shoppers have adjusted to elevated mortgage rates, which have been in the 6% to 7% range for almost a year, and are willing to participate in today’s market,” said Jones. “However, seller activity remains sluggish as homeowners are hesitant to list their home for sale and buy into the new, higher mortgage rate environment.”

Fewer homeowners have listed their home for sale during the past 54 weeks than did the previous year. And the overall number of homes on market has recently fallen below last year’s levels, according to Realtor.com.

“As a result, some markets are seeing high levels of competition as eager buyers compete for the relatively few homes on the market,” said Jones. “Home prices have not fallen significantly nationally, as limited for-sale inventory creates a more competitive environment.”

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