Economic research

Freddie Mac – Mortgage rates fall below 5%

Freddie Mac Mortgage Rates – August 4, 2022

What happened to mortgage rates this week:

The Freddie Mac fixed rate for a 30-year loan continued its downtrend this week, slipping below the 5.0% threshold to 4.99%. A series of surprisingly positive economic indicators offset the drumbeat of recessionary chatter: factory orders beat market expectations, as did ISM service sector data. However, the number of vacancies fell, although the labor market remained tight. Capital markets are looking for a stronger directional signal regarding economic activity amid a toss-up in consumer spending and business investment. While underlying economic conditions are showing resilience, the recession narrative is playing an important role in market psychology and investor expectations, as we see the strong upward push in rates more visibly moderating.

On the consumer side, we saw in this week’s Federal Reserve statement that Americans continue to spend, as evidenced by the record high of $16.2 trillion in household debt. The figures highlight huge spending on housing, through higher mortgage charges, and on goods and services, through credit card charges. The big question for consumers is whether companies will overreact to recession-related concerns and start cutting payrolls. A sharp drop in hiring could have a direct impact on people’s ability to keep spending, especially with today’s high inflation.

What this means:

For housing, the combination of high prices and higher interest rates is causing fundamentals to reset. With borrowing costs setting a ceiling on affordability for many buyers, home sales are plummeting. Also, as many homeowners rushed into the summer, ready to put their property up for sale and grab the equity resulting from the record prices, inventories improved. This brought a welcome sign to this year’s property markets: price declines. However, The most recent weekly data from show that some owners may feel they have missed the top of the market and delay listing. As the number of new listings declines, it raises fears that the nascent improvement in inventory may prove elusive heading into the latter stages of summer.

George RatiuGeorge Ratiu

George Ratiu