Mortgage rates in the US fell after the Federal Reserve raised its benchmark rate. According to Freddie Mac (Federal Home Loan Mortgage Corporation), the 30-year fixed-rate mortgage average fell to 5.30% in the week ending July 28, 2022, down from 5.54% the previous week. Mortgage rates in the US decreased for the first time in three weeks. Mortgage rates dropped following a disappointing report on gross domestic product (GDP), and the Fed’s most recent increase in interest rate.
Fed’s Recent Interest Rate Hike
On July 27, 2022, the Federal Reserve raised its benchmark rate by 0.75 percentage points for the second consecutive time to control rising inflation. Although mortgage rates do not have any direct relation with the Fed’s benchmark rate, they are significantly influenced by it. Mortgage rates closely follow the 10-year US bond treasury yield, which tends to fluctuate with Fed’s benchmark rate. The latest ’move by the Fed will affect consumers over the next several months as credit card interest rates and rates for new vehicle loans will increase in the coming billing cycles. The rates for borrowers with adjustable-rate mortgages, and for those who plan to apply for one shortly will also increase.
Disappointing GDP Data
The decline in mortgage rate followed the Q2 2022 GDP data released by the US Department of Commerce, which revealed that the GDP fell 0.9% in the second quarter of 2022 and shrank for the second consecutive quarter, which is considered a recognized indicator of a recession. GDP from residential investment, including the construction of single and multi-family homes and remodeling, fell 14%. The category accounts for 3% to 5% of GDP, according to the National Association of Home Builders.
Impact on Home Buyers
The softening of mortgage rates brought some relief to buyers. Lower interest rates seem to be affecting prospective homebuyers. As rates dropped from their previous highs, real estate company Redfin recently reported a modest increase in searches and house tours over the past month. However, mortgage rates are still high, up from the 3.11% level at end of 2021. The demand for home purchases continues to fall as homebuyers are affected by the combination of increasing rates, increasing home prices, looming fear of recession, and declining consumer confidence.
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