Mortgage Rates Slipped to 6.65%. Home Sales Fell Anyway.

The 30-year fixed-rate mortgage averaged 6.65% in Freddie Mac's Primary Mortgage Market Survey released August 20, down two basis points from 6.67% the week before. The 15-year fixed averaged 5.95%, down one basis point. Both are higher than a year ago: 6.58% and 5.69% respectively.

Sam Khater, Freddie Mac's chief economist, framed the move modestly. "The 30-year fixed-rate mortgage declined this week averaging 6.65%," he said. "With a dip in rates providing modest relief for homebuyers, it's important to remember borrowers can potentially save thousands by shopping around for the best mortgage rate."

What the survey rate is, and is not

The PMMS is not a quote anyone can necessarily get. It tracks conventional, conforming, fully amortizing home purchase loans made to borrowers putting 20% down with excellent credit. A borrower with a smaller down payment, a lower score, a jumbo balance or a non-conforming property is quoted off a different sheet. The survey is useful as a weekly directional series, not as a personal rate.

The sales data underneath

The National Association of Realtors reported existing-home sales at a seasonally adjusted annual rate of 4.06 million in July, down 1.7% from June and up 0.7% from a year earlier. The median existing-home price was $434,100, up 2.0% year over year. Inventory stood at 1.54 million units, down 1.9% from June, equivalent to 4.6 months of supply. The median property spent 29 days on the market.

• Existing-home sales: 4.06 million SAAR, -1.7% month over month, +0.7% year over year.
• Median existing-home price: $434,100, +2.0% year over year.
• Inventory: 1.54 million units, -1.9% from June.
• Months of supply: 4.6.
• Median days on market: 29.

NAR chief economist Lawrence Yun described the market as durable rather than strong. "Home sales have been remarkably stable, even amid the rising mortgage rate environment of the past few months," he said. "Year-to-date sales are up 2.4% and there's no doubt that the housing market would be thriving if average mortgage rates were to return near 6%."

Why a two-basis-point move does almost nothing

On a $400,000 loan, the difference between 6.67% and 6.65% is roughly $5 a month in principal and interest. Weekly moves of this size are noise at the household level. What moves transaction volumes is the level, sustained — and 6.65% is a level at which a large share of existing owners hold mortgages well below the prevailing rate, which discourages them from listing. That is the lock-in dynamic that keeps inventory at 1.54 million units even as prices grind higher.

Note the shape of the July data: sales down, inventory down, price up, days on market short. That is not the signature of a demand collapse. It is a market clearing at low volume because relatively little is for sale.

What comes next

Freddie Mac publishes the PMMS each Thursday. NAR releases pending home sales — contracts signed, which lead closings by roughly one to two months — later in the month, and its next existing-home sales report covers August. Pending sales fell 2.3% in July, which is the more forward-looking of the two series.