Mortgage rates to stay above 6% this year: Freddie Mac

Mortgage rates will spend the rest of the year moving mostly sideways, as inflation cools but remains above the Fed's goal, the latest Freddie Mac economic outlook states.

"Under our baseline scenario, the unemployment rate gradually moves modestly higher, enough to slow the economy but not trigger a full-blown recession," a blog posting authored by its Economic & Housing Research Group led by Sam Khater, chief economist, said. "In that scenario, we expect inflation to cool but remain above the Federal Reserve's target of 2% and mortgage rates to move mostly sideways, most likely remaining above 6% through year-end."

Starting last month, Freddie Mac moved to a qualitative forecast from the quarterly quantitative it had been providing in the past. This report was dated June 16, after the Federal Open Market Committee declined to raise short-term rates at its meeting earlier in the week.

In their prior forecasts, including for May, both Fannie Mae and the Mortgage Bankers Association have predicted the U.S. will enter into a recession in the second half of this year. Neither has publicized their June outlook yet.

With mortgage rates staying in that 6% range that put most people out of the money to refinance unless for need, that part of the market should remain muted for the rest of 2023.

This week's Primary Mortgage Market Survey, based on applications submitted to Freddie Mac's Loan Product Advisor automated underwriting system, put the 30-year fixed rate mortgage at 6.69%. The last time rates were under 6% was the week of Sept. 8, 2022.

"On the home purchase side, we expect mortgage originations to stay flat this year," Freddie Mac said. "Purchase originations will start to strengthen later this year as home sales stabilize, and they will resume modest growth in 2024."

Home sales should remain negatively affected by high mortgage rates and the slowing economy. But a bright spot so far this year is the entry-level segment.

"Despite the substantial affordability challenges, first-time home buyers continue to come to the market and have contributed to an increase in homeownership rates," Freddie Mac said.

To support its argument, the government-sponsored enterprise pointed to the below-median family income homeownership rate, which at the end of the first quarter was 53.4%, up from 48% in 2016 according to the Census Bureau's Housing Vacancy Survey.

Over the same time frame, the above-median income rate increased just 0.8 percentage points. 

"As of the first quarter of 2023, 87% of the 3.1 percentage point increase in the overall homeownership rate since 2016 can be attributed to the growth in the below-median family income homeownership rate," Freddie Mac said.