Mortgage rates slipped lower this week, even as the Federal Reserve announced it was implementing an additional interest rate hike to curb ongoing inflation.

Interest rates for a 30-year fixed mortgage averaged 6.39% in the week ending May 4, Freddie Mac announced on Thursday. That’s only fractionally lower than 6.43% last week, but many expect mortgage rates to fall even lower later this year.

But even with the most recent tick down, rates are still high enough to make homeownership too expensive for many Americans. What’s more, many economists increasingly believe the central bank’s unrelenting rate hikes—10 since March 2022—have been detrimental to the economy, especially in the wake of the most recent bank failure of First Republic.

“The latest interest rate hike by the Federal Reserve is unnecessary and harmful,” said National Association of Realtors® Chief Economist Lawrence Yun in a statement after the Fed meeting on Wednesday.

“Consumer price inflation has been decelerating and will continue,” explained Yun. “There is significant additional monetary policy tightening already occurring.”

And given the banking system is on shaky ground right now, Yun worries that the Fed might have gone overboard.

“The fast rate hikes by the Fed have upended the balance sheets of many small regional banks,” he continued. “They are becoming zombie-like banks, unable to lend even to good businesses as they are more concerned with balance sheet shuffling for survival.”

Might this also mean that these zombie banks can’t dish out as many home loans to eligible buyers?

Here’s what housing statistics and experts are saying in our latest installment of “How’s the Housing Market This Week?”

Why mortgage rates remain a ‘wild card’

With the economy in turmoil and mortgage credit becoming more difficult to obtain, the housing market remains in a sort of petrified limbo.

“Mortgage rates remain a big wild card for buyers and sellers as they are highly sensitive to incoming data and recent developments in the banking sector,” said Danielle Hale, chief economist for Realtor.com®, in her weekly analysis. “Amid all of the economic and financial swirl, which may worsen in the weeks ahead as the U.S. approaches the debt ceiling, the housing market continues to chug along at relatively low levels of activity.”

All that, and home prices still haven’t stopped climbing: For the week ending April 29, listing prices inched up 2.4% compared with last year. And with the median price of homes hovering at $430,000 in April, it’s no surprise that homebuyers are weary and leery of overextending themselves financially.

Why home sellers are plagued by ‘rate lock’

High mortgage rates continue to cast a shadow not only over buyers, but sellers as well.

A recent Realtor.com home seller survey found that 82% of prospective sellers are worried about “rate lock,” or having to trade in the ultralow rate on their current home for a much higher one if they were to sell and then try to buy.

For the week ending April 29, 22% fewer new listings hit the market compared with this same time period a year earlier. This downward trend has been going on for a whopping 43 weeks, roughly the same period that the Fed has been raising rates.

And for almost the same amount of time, homes have sat on the market longer, lingering 18 days longer for the last week of April than a year earlier.

“The 2023 housing market is far from the frenzy experienced over the past two years,” Hale noted. “In other words, sellers do not have all the advantages the way they did over the past two years, but they are still in a very good position.”

Buyers, maybe not so much.

Still, Hale takes a glass-half-full view: “Even if market momentum continues to lag behind the past few years,” she said, “the weeks ahead hold plenty of seasonal opportunity for buyers hoping to see some new options.”

The post Mortgage Rates Just Lurched in a Shocking Direction: What This ‘Wild Card’ Means for Real Estate appeared first on Real Estate News & Insights | realtor.com®.