For the third week in a row, weekly mortgage rates have seen a slight increase. The average rate for a 30-year fixed-rate mortgage rose by three basis points to 7.04% in the week ending May 22, as reported by Zillow to BW. A basis point is equivalent to one one-hundredth of a percentage point.
30-year fixed-rate mortgage rates have been hovering around 7% for most of the year. At the current rate of 7.04%, purchasing a $414,000 home (the national median sales price) with a 10% down payment would result in a monthly principal and interest payment of nearly $2,500.
The rising trend in home prices over the past decade seems inevitable, driven primarily by supply and demand dynamics. With a long-term housing deficit due to the construction industry’s slow recovery from the 2008 financial crisis, the undersupply of homes has led to increased costs.
Following a spike in mortgage rates from pandemic lows, average monthly mortgage payments have been reaching record highs. This period has been challenging for homebuyers, but there are indications that buyers may gain some leverage in negotiations.
New builds are waiting to be sold
Recent data suggests a potential shift in the housing market. Home builders are applying for fewer permits, citing reasons such as high mortgage rates, excess inventory, and policy uncertainties. Builders are hesitant to invest in new homes when existing inventory is slow-moving and market direction is uncertain.
This could signal a ceiling for mortgage costs. If rates remain stable (with no expected changes in the Federal Reserve’s target rate), the only way to attract buyers back is by lowering listing prices.
Zillow expects to see falling home prices
A new report from Zillow predicts a decrease in home values this year, alongside an increase in sales. Housing prices are projected to drop by 0.9% between April 2025 and April 2026.
The National Association of Realtors reports a 20.8% increase in housing inventory from the previous year. With 1.45 million homes on the market, buyers now have more options than they have had since September 2020, a time of intense competition fueled by historically low interest rates.
Buyers currently have the opportunity to browse and negotiate, as evidenced by nearly 25% of homes on Zillow experiencing price cuts in April, a peak homebuying season trend. Perhaps 2025 will offer a more favorable landscape for buyers.