Mortgage rates just posted their biggest weekly plunge since the 2008 financial crisis while the red-hot housing market appears to be cooling off.
Mortgage rates rose quickly as the Federal Reserve began hiking interest rates to combat inflation, although last week, they steeply fell off. The average rate on a 30-year loan is now at 5.3%, down from 5.7% last week, Freddie Mac announced on Thursday.
The government-sponsored housing enterprise pointed out in a statement that concerns about a recession continue to percolate as the rate plunges.
“While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” the statement said.
HOME PRICES DECELERATE FOR FIRST TIME IN MONTHS AS FED HIKES RATES
In order to tamp down crippling inflation, the Fed is working to pump the economy’s brakes and slow down demand, a move that might lead to a recession.
Last month, the central bank announced that it would hike its interest rate target by three-quarters of a percentage point, to a range of 1.5% to 1.75%. The move was akin to three rate hikes at once, the first time it has taken such an aggressive upward move since 1994.
The immediate effect of the Fed hiking interest rates was that mortgage rates went through the roof, making housing less affordable. Mortgage rates were at just 3.1% at the start of the year, much lower than their current levels.
Last week’s decline in rates shows that there are increased fears of the central bank tossing the economy into a recession, which would dampen demand for housing. Another sign that the housing market is cooling are prices.
Home price increases slightly decelerated in April, although prices are still extremely high compared to just a year ago.
Prices rose 20.4% on the year in April, slightly slower growth from the month before, when prices were up 20.6%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.
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It was the first time the index showed a slowdown in the pace of price increases since November.
Sales of existing homes also tumbled in May for the fourth month in a row as housing became less affordable across the country, according to a report by the National Association of Realtors. Sales were down 8.6% from a year ago.
