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Mortgage rates rise to highest point in 2023, but new inflation data offers hope

Mortgage rates climbed close to 7% this week, hitting their highest point of the year. But experts say rates may soften in weeks ahead based upon new inflation data.

The rate on the 30-year fixed mortgage increased to 6.96% from 6.81% the week prior, according to Freddie Mac. Rates, however, are likely to decline next week, as new government data released Wednesday showed inflation had cooled to its lowest level since early 2021.

The Freddie Mac survey collects data from Thursday through Wednesday and may not reflect the latest market response to inflation data.

Per At the current 6.96% rate, the monthly mortgage payment on a median listing priced home of $445,000 is $2,565. A week ago, when rates were 6.81% the monthly payment was $2,527. That's after at least a 13% down payment.

The rise in rates is bad news for potential buyers. Higher rates have kept homeowners from listing — keeping inventory tight and home prices elevated.

"[This week’s] encouraging inflation data could be used as a basis for another ‘wait-and-see’ approach in the upcoming FOMC meeting, which may help reverse the recent rise in mortgage rates," economist Jiayi Xu said in a statement. "This, in turn, would create a more favorable environment for those looking to purchase a home in the coming fall season."

Buyers seek affordable options

Mortgage demand for purchases hit the lowest point in a month toward the end of June but seemed to pick up modestly during the Fourth of July weekend, said the Mortgage Bankers Association (MBA).

The volume of purchase applications increased 2% on a seasonally adjusted basis for the week ending July 7, per the MBA, but remained 26% lower than the same week a year ago.

"The rise in purchase activity was driven by increases in both FHA and VA purchase applications," MBA deputy chief economist Joel Kan said in a statement.

These loans typically attract first-time buyers, who are making up a larger share of the buyer pool as "move-up buyers" remain reluctant to sell their current home and lose their existing low mortgage rate.

The problem for first-time buyers, though, is finding homes within their price budgets.

Confidence among buyers was also weak in June. At least 78% of potential buyers said they thought it was a bad time to buy, according to Fannie Mae’s latest confidence index. Only 22% of those surveyed believed it was a good time to purchase.

"Inventory — particularly affordable homes — is tight in Miami," Luis Padilla, CEO of OceanSide Reality and Padilla Team in Miami, told Yahoo Finance. "We're getting a lot of heat and new incomers from Chicago, California, New York that are looking for affordability here. The problem is that locals then get pushed out, and have to move north of Orlando or out of state. It's happening a lot."

Home prices may have reached their peak

Chad Wootton looks at the listings of homes for sale while talking on the phone in Los Angeles.( Jae C. Hong, AP Photo)
Chad Wootton looks at the listings of homes for sale while talking on the phone in Los Angeles.( Jae C. Hong, AP Photo) (ASSOCIATED PRESS)

The lack of previously owned homes for sale has kept home prices stubbornly high, but buyers may be relieved to hear that home prices may have reached a peak for the year.

The median home price in the US was $452,490 for the week ended July 10, according to Altos Research, down from $455,000 the week prior. That’s half a percent lower than a week prior and half a percent lower than a year ago.

"Home prices are flat year over year and there’s no indication anywhere in the data yet that home prices are falling from here," Mike Simonsen, CEO of Altos Research, wrote in a blog post. "It’s very common for the last week of June to be the peak of home asking prices and it looks like this year is no exception."

There are just 465,000 active unsold US single-family homes on the market for the week ending July 10, according to Altos Research, down from 467,000 the week prior.

At this pace, economists from expect that the share of previously owned homes will drop by 5% for the year as a whole, Xu said in a statement.

One silver lining for homebuyers in today's market could be an influx of new construction.

Construction of both single- and multi-family homes increased 21.7% to a seasonally adjusted annual rate of 1.631 million units in May, the latest Census Bureau data found. Permits to build and housing starts also registered month-over-month gains.

Xu added: "Fortunately for buyers, new homes remain an option, as builders are continuing to add homes with a somewhat greater focus on affordable price points."

Gabriella Cruz-Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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