Mortgage rates lower, but still over 7% for third week

Even though the average interest rate for the 30-year fixed loan fell 5 basis points from last week, they remain elevated as the Federal Reserve considers another hike of its own.

The Freddie Mac Primary Mortgage Market Survey found the average for the 30-year FRM was 7.18% for the week of Aug. 31, down from 7.23% seven days prior. A year ago, it was at 5.66%.

Meanwhile the 15-year fixed remained unchanged at 6.55%. For the same week in 2022, the average rate was 4.98%.

"Despite continued high rates, low inventory is keeping house prices steady," said Sam Khater, Freddie Mac's chief economist, in a press release. "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."

Between Aug. 14 and Aug. 29, the benchmark 10-year Treasury yield was above 4.2%, with an Aug. 22 high point of 4.36%. But while some expected spreads between Treasurys and mortgages to narrow to more normal levels, the recent movements show this has yet to happen.

Zillow's rate tracker had an 18 basis point decrease as of mid-morning Aug. 31, to 6.88% from an average of 7.06% for the prior week.

"After reaching their highest level in more than two decades last week, mortgage rates fell this week on economic data showing more modest economic growth in the second quarter and a cooling labor market," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a Wednesday evening statement. "Revisions to the second quarter estimate of economic growth, which showed a moderation in consumer spending and large downward revisions to business investment — two factors frequently pointed to as sources of strong economic activity — helped push bond yields and mortgage rates downward."

An inflation gauge the Federal Reserve looks at in its decision making process, the Personal Consumption Expenditures Index, rose 3.3% annually in July, higher than June's 3% increase but still lower than 3.8% in May and 4.3% in April.

Besides investors reaction to this data, mortgage rate volatility will be driven by Friday's monthly Bureau of Labor Statistics report.

At noon Thursday, following the PCE announcement, the 10-year Treasury yield was down 3 basis points to 4.09%.

"Signs of a cooling labor market also helped rates trend lower this week," Divounguy said. "Labor demand is still far above pre-pandemic norms but is slowly easing: Job openings fell in June to their lowest level since March 2021."