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Aug. 21, 2022, 2:46 p.m. EDT

‘Plunge in affordability’: Mortgage rates dip slightly due to cooling inflation data, but new construction slows

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By Aarthi Swaminathan

The 30-year fixed-rate mortgage averaged 5.13% as of Aug. 11,  according to data released  by Freddie Mac on Thursday — down 9 basis points from the previous week. One basis point is equal to one hundredth of a percentage point, or 1% of 1%.

The average rate on the 15-year fixed-rate mortgage fell 4 basis points over the past week to 4.55%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.39%, down 4 basis points from the prior week.

The small decline was reflective of new data on inflation , which was flat month-over-month in July. The cost of living is up 8.1% year-over-year.

“Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” Sam Khater, chief economist, Freddie Mac said in a statement.

“The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability,” he added.

Khater expects purchase demand to continue to drag, and home-price growth to decelerate.

Price growth on existing homes has started to slow, decelerating slightly in July, according to the National Association of Realtors. The median price for an existing home was $403,800 in July.

Home buyers are spooked by the rising prices, higher rates, and recession fears, leading sellers to  up incentives  in an effort to entice apprehensive prospects.

Builders are calling the current situation a “ housing recession ,” and new construction of homes has started to fall.

They also expressed gloominess in an August survey, signaling that construction will continue to slow.

Construction on new U.S. homes fell a seasonally adjusted 9.6% in July to 1.45 million, t he Commerce Department said Tuesday, the lowest level of starts in July since February 2021.

That slowdown will likely lead to a tightening of supply, which will in turn drive up more demand for rental units and put upward pressure on rents .

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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