MORTGAGE RATES FALL AFTER FED HIKES RATES

U.S. mortgage rates fell last week after the U.S. Federal Reserve added three-quarters of a point to its key interest rate.

The interest on a 30-year, fixed-rate mortgage dropped from 5.54 percent on Wednesday, the day the Fed raised its rate, to 5.22 on Thursday. It slumped to 5.13 percent on Friday and closed Monday, 1 August, at 5.28 percent, according to Bankrate.com.

Mortgage rates have been drifting lower since mid-June when they peaked above 6 percent in some areas.

The drop in loan rates followed news that the U.S. economy contracted 0.9 percent in July, putting the U.S. into a technical recession.

Fears of a recession pushed more investors into government securities. Demand for the bonds and notes rose, pushing prices higher. When the securities’ prices rise, yields fall.

Mortgage loan rates closely mimic the yield on the 10-year treasury note, so when that yield sank, so did mortgage rates.

“The housing market seems to be settling into an equilibrium now that demand has leveled off,” Daryl Fairweather, chief economist for real estate brokerage Redfin, said in a statement.

“We may still be in for some surprises when it comes to inflation and rate hikes from the Fed but, for now, an ease in mortgage rates has brought some relief to buyers who were reeling from [June’s] rate spike,” he added.

Although Redfin has reported a recent bump in searches on its website and home tours, those are leading indicators.

The number of purchase contracts signed and houses sold is still decreasing, as we report in “New Home Sales Fall to Two-Year Low In June” in this issue.

TREND FORECAST: Now that the Fed has lifted its key interest rate above 1.5 percent, the housing market is beginning to crumble, as we have long forecast it would.

Last year’s home-buying frenzy bid prices up to ridiculous levels, with buyers sometimes offering $50,000 or more above asking prices.

As a result, the average selling price of U.S. homes in this year’s second quarter was $525,000, according to the Federal Reserve Bank of St. Louis. (See “New Home Sales Fall to Two-Year Low In June” in this issue.)

As we also have noted in “Home Prices Set Yet Another Record While Sales Fall” (26 Apr 2022) and elsewhere, the housing market already has frozen for modest-and middle-income buyers, with those groups now representing less than half of all home sales.

Scarce, expensive materials will keep new home prices high for the foreseeable future, keeping the price of existing homes aloft and out of the reach of average American families—especially as they continue to be battered by rising prices and rising interest rates.

These factors are creating the first generation of Americans who are likely to be lifelong renters, denied the opportunity to build wealth by accumulating equity in a home of their own.