Even as the real estate and mortgage markets are seeing light at the end of the tunnel following two difficult years of conditions, mortgage rates have yet to ease enough to create a surge of demand for purchase loans and refinances.
At HousingWire‘s Mortgage Rates Center on Tuesday, the rate for 30-year conventional loans stood at 6.64%, down 5 basis points (bps) from a week ago. The 15-year conventional rate averaged 6.28%, up 3 bps from a week ago.
After Federal Reserve Chair Jerome Powell delivered remarks late last week at the Jackson Hole Symposium, a cut to the federal funds rate next month was all but cemented. The question now is how large the cut will be.
“The current rate of unemployment is higher than the 4.2% that members penciled in for the long-run rate in their last Summary of Economic Projections,“ Afifa Saburi, a capital markets analyst at Veterans United Home Loans, said last week in prepared remarks. “This means the Fed has left the door open for September’s cut to be either 25 bps or 50 bps, depending on the data.
“The market has repriced accordingly, raising expectations of a 50 bps cut. We will get labor market data before the Fed’s September decision, so all market participants will be glued to this data to get a better idea of what the Fed’s next move will be.“
The CME Group‘s FedWatch tool on Tuesday showed that interest rate traders continue to give shorter odds for a smaller cut, with 71.5% predicting a 25-bps decrease. The federal funds rate hasn’t budged from its current range of 5.25% to 5.5% since July 2023.
Importantly, however, mortgage companies have by and large baked the expected rate relief into their current pricing.
“While a September cut is a given, prospective homebuyers won’t likely see much relief in mortgage rates unless it’s a 50 bps cut,“ Saburi said. “Markets are forward looking, so any relief from a 25 bps cut is already reflected in today’s mortgage rates. If the data continues in the direction it has been going, we could see additional relief in mortgage rate costs by the end of the year, as the Fed now sounds more flexible than it was in July.”
A Redfin report released Tuesday confirmed that a potential surge of demand is likely a long way off. The brokerage analyzed Federal Housing Finance Agency data from first-quarter 2024 and found that roughly six in seven U.S. homeowners with mortgages had rates below 6%. This share has been slowly shrinking over the past two years, but it illustrates that the lock-in effect is still in full swing.
“I have a dozen or so homeowners who would like to sell, but aren’t willing to give up their 3% interest rate for one that’s more than twice as high,” Blakely Minton, a Redfin agent in Philadelphia, said in the report. “Many of those sellers will list if rates get back down to 5%.”
Even if rates continue to cool, home price growth has undercut affordability for many Americans. The S&P CoreLogic Case-Shiller home price index reached another record high in June, although its annualized rate of appreciation slowed to its lowest level since November 2023.
A new report from Clever Real Estate found that monthly rent payments are less expensive than monthly mortgage payments in 48 of the 50 largest U.S. cities. Cleveland and Pittsburgh are the only cities that bucked this trend.
The report noted that home price growth has outpaced rent growth by 39% since 2019 and by 72% in the past year alone. When comparing median home prices to monthly rents, the cities deemed least affordable for owning were San Jose, San Francisco, Los Angeles, Seattle and Salt Lake City.
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