Even As Mortgage Rates Climb Above 5 Percent, Market Volatility May Be Slowing

Mortgage rates have increased to more than 5 percent this week, after falling below the same threshold for the first time in many months just a few weeks ago.  Obviously this suggests the housing market is quite volatile right now but analysts seem to think there are some signs of coming stability.

Freddie Mac Chief Economist Sam Khater explains, “Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.”

Specifically, the 30-year fixed-rate mortgage average is up to 5.22 percent, from 4.99 percent last week.  Last year, the same metric was only 2.87 percent. Of course, 5.22 is still lower than the year-high of 5.81 percent, which the market reached in mid-June. But even amid all this volatility, Khater concedes that stability is coming.

He goes on to say, “Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market.”

Fortunately, Realtor.com Manager of Economic Research George Ratiu agrees that markets are looking for more certainty when it comes to the economic outlook because the incoming data continues to emphasize steadiness in both business activity as well as consumer spending.  Ratiu also advises that there is still elevated concern over a potential recession, but August seems to offer a slight reprieve.

Ratiu adds, “The inventory of homes for sale increased solidly in July, moving toward levels not seen since mid-2020.  With more available properties and less competition, more homeowners are beginning to adjust to the new reality and resorting to price cuts to incentivize buyers.”

Just one year ago, a potential buyer with a 20 percent downpayment for a median-priced home (around $390,000), with financing on a 30-year fixed rate mortgage at an average interest rate of 2.87 percent could cound on a monthly mortgage payment of no more than $1,300.  This is according to data from Freddie Mac.