(Bloomberg) — U.S. mortgage rates dipped slightly for the third straight week of declines.
The average for a 30-year loan was 5.09%, down slightly from 5.1% last week, Freddie Mac said in a statement Thursday.
Buyers have gotten a slight reprieve in recent weeks from the massive run-up in mortgage rates that’s dominated this year. Borrowing costs are still up nearly 2 percentage points from the end of 2021, an increase that’s started to have a cooling effect on the housing market. Nearly one in five sellers cut listing prices in the four weeks ended May 22, the highest level since October 2019, Redfin Corp. said last week in a report.
“Mortgage rates continued to inch downward this week but are still significantly higher than last year, affecting affordability and purchase demand,” Sam Khater, Freddie Mac’s chief economist, said in the statement. “Heading into the summer, the potential home buyer pool has shrunk, supply is on the rise, and the housing market is normalizing. This is welcome news following unprecedented market tightness over the last couple years.”
At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,627 a month, $344 more than at the end of last year.
More homes hit the market
Meanwhile, home listings increased for the first time since June 2019, according to Realtor.com data, suggesting the US housing supply hit a turning point last month.
The number of active listings rose 8% year over year in May, probably driven by new sellers and a slowdown in would-be buyers deterred by high prices, Realtor.com said in a report Thursday. The largest increases in new listings were in the West and the South, in cities including Austin, Texas, and Phoenix.
Still, the uptick in inventory doesn’t necessarily mean that the housing market exuberance is softening. Listings remain 48.5%below their May 2020 level, and price increases have accelerated in recent months.
“While this real estate refresh is welcome news in a still-undersupplied market, it has yet to make a dent in home price growth,” Danielle Hale,chief economist for Realtor.com, said in the report.
The U.S. median listing price rose to a record $447,000 in May, after just crossing the $400,000 threshold in March. And buyers made purchasing more quickly than in any month in Realtor.com data history going back to July 2016.
Nonetheless, the jump in mortgage rates and a softening economic outlook may have thinned out buyers and made bidding wars less exuberant. In an early sign, the rate of sellers making price cuts accelerated in May, Hale said.
Home prices continue to soar
Consumers have had to contend with an increasingly difficult affordability situation in recent years as prices soared during the pandemic. The S&P CoreLogic Case-Shiller Index released Tuesday suggested that price gains continued to accelerate in the year through March. Home-price growth in 20 US cities picked up for the fourth straight month with Tampa showing the biggest gains.
A measure of prices in those 20 cities climbed 21.2% through March following a 20.3% gain in February. All 20 cities reported double-digit price increases for the year ended March and prices in Tampa jumped 34.8%, according to a statement. Boston saw a 14.5% year-over-year jump in prices. Only Chicago, New York City, Minneapolis, and Washington, D.C., saw lower increases.
“Those of us who have been anticipating a deceleration in the growth rate of US home prices will have to wait at least a month longer,” Craig Lazzara, a managing director at S&P Dow Jones Indices, said in the statement.
The index, which is based on research from economists Robert Shiller and Karl Case, is an important gauge of the health of the US housing market in part due to its breadth of measurements around the US and the more than 27 years of historical data.
“The strength of house prices may come as a surprise given the surge in mortgage interest rates over the past couple of months,” Matthew Pointon, a senior property economist at Capital Economics, said Tuesday in a report to clients. “But note Case-Shiller takes an average of the price of homes sold over the previous three months (i.e. January to March), and back then, home demand was still strong.”
Nationally, prices rallied 20.6%, but S&P Dow Jones Indices’ Lazzara warned that a deceleration could be on the horizon.
“Mortgages are becoming more expensive as the Federal Reserve has begun to ratchet up interest rates, suggesting that the macroeconomic environment may not support extraordinary home-price growth for much longer,” Lazzara said. “Although one can safely predict that price gains will begin to decelerate, the timing of the deceleration is a more difficult call.”
With inventory still tight, an outright decline in price growth is unlikely, according to Capital Economics’ Pointon. He expects annual growth to slow to around 9% by the end of this year.