Mortgage rates fell below 3% as housing affordability becomes an increasing concern

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Base mortgage rates fell below 3%, falling along with long-term bond yields. But the latest cut in mortgage rates is unlikely to spur growth in real estate activity.

30-year fixed-rate mortgages averaged 2.98% for the week ending July 1, down four basis points from the previous week, Freddie Mac
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reported on Thursday… Last week, the 30-year loan jumped above 3% for the first time since late April, reflecting the bond market’s view that the Federal Reserve may raise interest rates earlier than previously expected.

15-year fixed rate mortgages fell eight basis points to an average of 2.26%, while a 5-year Treasury-indexed hybrid adjustable rate mortgage rose one basis point to an average of 2.54% …

“Despite mounting inflationary pressures and strong economic data, mortgage rates have dropped this week,” said Matthew Speakman, an economist at Zillow.
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According to him, this is the latest signal that “investors believe in the idea that rising price pressures are temporary, and more accurate data on inflation will be obtained only after the restrictions in the supply chain are eased.”

The Federal Reserve was generally of the opinion that the dizzying inflation rates seen in the US economy were a reflection of the economic recovery after the pandemic. However, some economists disagree with this view, arguing that price increases may last longer than the central bank expects. including housing

Mortgage rates roughly track the direction of long-term bond yields, including the yield on 10-year Treasuries.
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which have retreated since taking off back in March. Movements in bond markets some analysts saidalso reflect fears that if the Fed does take action to wind down fiscal stimulus before the economy and labor market fully recover, the pain could be more lasting.

In any case, the fall in mortgage rates may not give the housing market the same recovery as before. Incomplete home sales data for the last month far exceeded economists’ expectationswhich is a good sign for home sales figures in the coming months. However, other indicators indicate that the second half of 2021 will be a tough road for the US housing market.

In particular, data from the Mortgage Bankers’ Association showed that the number of applications for mortgages decreased, including in relation to loans used to buy houses. Low mortgage rates continue to support the existing demand for housing, but they are unlikely to induce more buyers to enter the market, given the severe shortage of properties for sale. Sellers may be tempted to list if they feel they can make a significant return on their investment, but affordability will become a bigger issue in the housing market in the coming months.

“For buyers looking to buy a home at an average price of $ 385,000, the monthly payment this year is $ 145 higher than June 2020, even though interest rates are still hovering around historic lows.” said George Ratiu, senior economist at Realtor.com.

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