The Freddie Mac fixed rate for a 30-year loan declined 6 basis points this week to 6.5% in the wake of the global bond sell-off that kicked September off to a rocky start. Investors are concerned about the fiscal outlook viewed through the lens of a slowing economy, as well as the Federal Reserve’s efforts to curtail inflation.
The weak summer employment figures, coupled with the pullback in the number of open jobs, are signaling that companies are taking a cautious view of consumers’ ability to continue spending at the same pace they have over the past few years. Markets are keeping a close eye on tomorrow’s payroll employment release for a directional sign in the economic data.
On the inflation front, prices continue to rise, with both the Consumer Price Index and the Personal Consumption Expenditure (PCE) Index remaining above the Fed’s 2.0% target. The core PCE Index, which removes the more volatile food and energy prices and is the Fed’s preferred metric, accelerated on a yearly basis as of the latest reading, indicating that businesses are beginning to pass tariff-induced higher costs onto consumers.
The 30-year fixed mortgage rate has been on a downward glide since mid-July, following the trajectory of the 10-year Treasury. However, the rate has been hovering above 6.0% since September 15, 2022. The marginal improvement in financing power brought by today’s change is not enough to overcome consumers’ higher monthly bills for food, utilities, insurance, and childcare.
For homebuyers looking at a listed median-priced home of $440,000, financed with a 6.5% rate, the monthly mortgage payment amounts to about $2,780, including taxes and insurance. Even for a household that earns $100,000 per year, the payment represents approximately 48% of take-home pay. The numbers highlight that today’s for-sale housing market remains challenging, especially for first-time buyers, and even move-up buyers who are making payments on a loan at a 2.8% rate.