Mortgage rates fall below 5% for first time since April

Mortgage rates are back below 5% this week for the first time in four months, providing temporary relief for homebuyers stricken by the recent rapid rise in rates.

The rate on the 30-year fixed mortgage slipped to 4.99% from 5.3% the week prior, according to Freddie Mac, sinking below the 5% level for the first time since the week of April 7.

While the rate is lower than the 5.81% seen in June, it’s still more than 1.75 percentage points higher than the start of the year.

Higher rates have crushed homebuyer confidence, as many are met with tough affordability conditions and a shortage of inventory for sale. Homeowners, too, are seeing it’s getting more expensive to tap their equity gains.

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” Freddie Mac Chief Economist Sam Khater said in a statement. “The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

The sudden rate drop on the popular 30-year home loan followed a decline in 10-year Treasury yield this week, which settled after the Federal Reserve hiked its benchmark interest rate by three-quarters of a point the week prior.

But as inflation levels remain at 40-year highs, all signals point that the Fed will continue to raise rates – giving first-time buyers little relief for what’s left of the year. Add in newfound recession concerns, and the result has been a rapidly cooling housing market.

A record of 81% consumers said that the economy was on the “wrong track,” according to the latest homebuyer sentiment survey from Fannie Mae. Nearly half of all respondents in prime homebuying groups noted that it would be “difficult” to get a mortgage – the highest percentage since 2014.

At the same time, mortgage demand has faltered in recent weeks. Purchase activity increased 1.2% from one week earlier, according to the Mortgage Bankers Association’s survey for the week ending July 29, but remained 16% lower compared to one year ago.

“Buyers are still very anxious and eager to get into a home, but there clearly is some hesitation as a result of rate volatility,” Jeffrey Ruben, president of WSFS Mortgage, told Yahoo Money. “I don’t think home values have retreated in any meaningful way. They are rising fast as before, and are still elevated from a year ago.”

The latest June data from Realtor.com showed the median home price hit a record $450,000. For the week ending July 23, the median listing price continued its upward climb hitting its 32nd week of double-digit growth, jumping by 16.6% over the last year.

But sellers are quicker to lower those listing prices as buyers become more hesitant. In June, Realtor.com data showed that the share of homes that reduced their list price hit 14.9%, up from 7.6% a year ago.

“We are seeing a shift from a seller’s market. I won’t call it a buyer’s market at this point, but it is clearly less of a sellers market,” Ruben said. “Buyers are starting to pause and think twice about what they’re doing, and people selling their homes are recognizing this as well.”

“The days of fury activity to bid up the price,” Ruben added, “those days are gone.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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