Mortgage Rates Unlikely to Cool in August

Mortgage rates will likely rise in August as the Federal Reserve continues to yank interest rates higher.

The Fed’s chairman, Jerome Powell, has repeatedly said that the central bank’s “overarching focus” right now is to slow inflation. The Fed applies the brakes on inflation by raising short-term interest rates. When the central bank tugs short-term rates higher, mortgage rates usually rise, too.

In fact, the Fed has targeted mortgage rates specifically. During the depths of the pandemic, the central bank bought government and mortgage debt, pushing mortgage rates to record lows. Now, the Fed is gradually reducing those debt holdings, which is expected to force rates upward.

This so-called reduction of the Fed’s balance sheet is just beginning. As Powell pointed out in a news conference on July 27 after the Fed’s latest rate increase, the shedding of these assets is still ramping up and will “go to full strength” in September. As that date approaches, mortgage rates will bear additional upward pressure.

Affordability in the balance

Home prices have been rising swiftly along with mortgage rates, a combination that demoralizes buyers because homes become less affordable. Look at what happened to affordability from January to June. When you take the median home resale price and average mortgage rate in both months, the monthly payment on a typical home bought in June was $774 higher than its counterpart in January (after a 5% down payment).

If there’s any good news for home buyers, it’s that prices aren’t rising as fast as they once were. In June, the median resale price of an existing home was 13.4% higher than a year before, whereas, in February, the year-over-year price increase was 17.1%. Higher mortgage rates helped drive the price slowdown.

Rising mortgage rates have had an even deeper impact on the median price of new homes, which went up 7.4% in the 12 months ending in June, according to the U.S. Census Bureau. As recently as April and May, the year-over-year price increases had exceeded 20%. Again, the Fed’s campaign of rate increases has changed the pace of home prices increases.

The Fed is determined

The bottom line is that house prices continue to rise, making it difficult for would-be buyers to find homes they can afford. But it’s hard to dispute that the Federal Reserve is succeeding in slowing down runaway house prices. Eventually, in a roundabout way, the slowdown in home prices will be reflected in the overall inflation rate.

Is it necessary for the Fed to cause a recession to chop the inflation rate to its 2% goal? Powell danced around that question in his July 27 news conference. He said he’s not the person who defines when a recession begins and ends, and he added, “our goal is to bring inflation down and have a so-called soft landing, by which I mean a landing that doesn’t require … a really significant increase in unemployment.”

But he also implied that he’s willing to restrict the U.S. economy, including the strong job market, if that’s what’s necessary to bring inflation under control. If and when the Fed succeeds in cutting the inflation rate to 2%, mortgage rates could decline because mortgage rates respond to inflation expectations.

What happened in July

The average 30-year fixed mortgage rate fell slightly in July after having risen seven months in a row. It averaged 5.66% in June and 5.55% in July.

In my July forecast, I predicted that mortgage rates would go up, driven by high inflation and the Fed’s efforts to control it. (This is the same reasoning behind the August forecast of higher mortgage rates.) But investors positioned themselves for a recession by buying bonds, which had the indirect effect of pushing down on mortgage rates. I’ve guessed correctly in eight of the past 12 months.

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4 Clear-as-Day Signs the Housing Market Is Cooling Down—and What This Means for Buyers and Sellers

Despite the sweltering heat, real estate’s red-hot tear is, at long last, slowing down and chilling out.

In our series “How’s the Housing Market This Week?” we look at the four crucial indicators: home prices, new listings, days on the market, and mortgage rates. For the week ending July 23 (the most recent research available), all four are showing noteworthy shifts that suggest that the raging seller’s market of the past two years might be balancing out.

This is potentially good news for homebuyers but not so much for sellers, who are on edge and worried they’ve missed the peak to cash in. Given things are changing fast, here’s the information you need right now to navigate today’s treacherous market prepared.

Weekly Housing Trends.

1. Asking prices are still up, but getting cut left and right

The latest June data from® places the median home price nationwide at a record-setting $450,000. And, for the week ending July 23, the median listing price continued its 32nd straight week of double-digit growth, shooting up by 16.6% over last year.

However, these sky-high asking prices are just that: an ask. And buyers just aren’t biting like they used to. As a result, the portion of home sellers who resorted to cutting their price in June doubled to 14.9% from 7.6% last year.

“Although home prices have not retreated, homeowners seem to be aware of the shifting market dynamic,” Chief Economist Danielle Hale points out in her analysis. “And it may already be affecting their willingness to sell.” (More on that next.)

2. Fewer homes are going up for sale

The number of new listings on the market dropped by 6% year over year for the week ending July 23—that’s the third straight week of decline.

This means homebuyers have fewer properties to check out, although inventory overall (including new listings as well as oldies still up for grabs) is up by 30% over a year ago.

“The improvement for buyers essentially means they have four choices today for every three they had one year ago,” Hale explains.

Nonetheless, to put this in a larger context, active listings for the entire month of June remain less than half their level a year earlier.


“Today’s shoppers have more options,” Hale says. “But the market needs even more before the selection is on par with the pre-pandemic or even the early-pandemic housing market.”


Freddie Mac, for the week ending July 28, the average 30-year fixed mortgage rate dropped to 5.3%—down from the previous week’s average of 5.54%.

Yet whether this momentary reprieve for homebuyers will last is anyone’s guess. Adding to the turmoil, the Federal Reserve approved yet another interest rate hike on Wednesday of three-quarters of a percentage point—the fourth increase in five months—in its ongoing fight to curb inflation by dampening Americans’ desire to spend (or borrow, as most do for housing).

And so far at least, the Fed’s efforts appear to be having the desired effect on homebuyers, many of whom are thinking twice about whether to forge ahead.

“As inflation continues to exceed expectations, data show that the Fed’s policy adjustment is cooling housing demand,” Hale says. Plus, “the forward-looking pending home sales data suggests further cooling on the horizon.”

The post 4 Clear-as-Day Signs the Housing Market Is Cooling Down—and What This Means for Buyers and Sellers appeared first on Real Estate News & Insights |®.

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