Mortgage Rate Update Amid Housing Market Uncertainty

Mortgage rates finally dropped last week after five weeks of continuously creeping up, but remain much higher than they were during this time last year, according to a primary mortgage market survey update by the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac.

The group published a new report on Thursday showing that the 30-year fixed-rate mortgage—the most popular type of home loan among American homebuyers—averaged 7.18 percent in the week ending on August 31, 2023, 0.5 percent down from the previous week.

While any drop could be a relief to homebuyers struggling with high mortgage rates, the rate remained higher than it was during this time last year, when it averaged 5.66 percent. The 15-year fixed-rate mortgage was also higher than last year's 4.98 percent, at an average of 6.55 percent.

The sudden rise of mortgage rates in the past year, closely linked to the Federal Reserve's aggressive rate-hiking campaign to bring down inflation, has come as a shock to the booming U.S. housing market.

Low mortgage rates during the pandemic had contributed to an explosion in demand, which combined with low inventory led homebuyers to bidding wars that contributed to prices skyrocketing between 2020 and 2022. But when high prices met with higher mortgage rates last year, demand—and sales—started to decline, triggering a so-called "correction" of the housing market.

But with high mortgage rates and lingering low supplies of homes, homebuyers still hold the short end of the stick in the market.

Where mortgage rates will go next—whether they'll further slide down or spike up again—will largely depend on the next move from the Federal Reserve, whose chair, Jerome Powell, recently signaled that the central bank might raise its key interest rate again as inflation remains too high.

Annual inflation in the country rose to 3.2 percent in July compared to 3 percent in June, though it remained below the forecasted 3.3 percent. Despite having dropped significantly in recent months from the peak of 8.5 percent reached last year, inflation remains above the Federal Reserve's target of 2 percent.

"Mortgage rates leveled off this week but remain elevated. Despite continued high rates, low inventory is keeping house prices steady," said Sam Khater, Freddie Mac's chief economist. "Recent volatility makes it difficult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes."

The Fed is expected to meet on September 19 and 20. After its last meeting in July, the central bank raised its key interest rate from 5.25 to 5.50 percent.