On Wednesday before last, the US Federal Reserve System raised the interest rate by three quarters of a percent with a further increase probably ahead. Nevertheless, many economists concur that we are not going to see any significant growth of mortgage rates now or over the next few months.
The recent slowdown in the American real estate market has a lot to do with a sudden surge of mortgage rates that occurred in late spring – early summer of the current year after the US Federal Reserve System decided to increase interest rates to continue fighting the inflation.
Rick Beckwitt, CEO and President at Lennar Corporation (a construction firm), declared that the Florida market is the least affected by these negative factors, proving to be among the best American markets that month.
According to the National Association of Realtors, sales of existing residential properties reduced by 5.4% in June compared to May and by 14.2% compared to last year. Lawrence Yun, Chief Economist at the Association, wrote in his half-year forecast that the mortgage market had already factored in the price any additional rate hikes, including the recent increase. Besides, fixed mortgage rates are pegged to the 10-year treasury rate, even though they take into account other indicators too, including inflation.
“We will probably reach the highest mortgage rate amounts regardless of what the US Federal Reserve System does over the next months,” Yun said.
According to the Freddie Mac mortgage corporation, the 30-year fixed mortgage rate surged to 5.52% in June. A short time ago, it was hovering around 5%.
This doesn’t mean that mortgage rates will fully stabilize. “We should probably expect slight up and down fluctuations,” Yun believes.
Mark Vitner, Senior Economist at Wells Fargo & Company, shared his opinion on the subject: “It seems increasingly likely that the US Federal Reserve System is approaching the end of rate-raising. Markets expect it to lower the interest rates next year. Mortgage rates have probably already reached a record high this year. They will probably stay a quarter of a percent higher or lower than 5.5% throughout the rest of the year.”
Skylar Olsen, Chief Economist at Zillow Group (Seattle), also believes that mortgage rates will probably remain stable in the nearest future, even taking into account the expected increase by the Federal Reserve System.
But if mortgage rates remain stable, hovering around 5%, does this mean that the current slowdown in the residential property market will be reversed? Olsen said that the low affordability caused by high mortgage rates and home prices will remain a major obstacle for many households.