Mortgage rates haven’t frozen the spring housing market

In the short term, two other factors are likely to influence mortgage rates, which have remained above 6.5% for 30-year loans since October.

The first is President Donald Trump’s deal with China to lower tariffs between the two countries for 90 days. This could provide interim relief to homebuilders as tariffs on construction materials were estimated to add as much as $22,000 to the cost of building a home.

The second is inflation data, which continues to run slightly above the Fed’s 2% annualized target. The Consumer Price Index (CPI) for April rose 2.3% year over year and 0.2% month over month. Although that’s the lowest annualized increase since February 2021 — before the Fed began an aggressive rate-hike campaign — market observers think tariffs could reignite inflation gains in May.

These factors are dampening hopes of a Fed rate cut in the near future. According to the CME Group’s FedWatch tool, only 8% of interest rates traders believe rates will be lowered in June. That’s down significantly from mid-April, when 61% were predicting a cut of 25 bps.

Powell’s remarks last week are surely a factor as the central bank is unlikely to make any cuts until the employment or inflation picture warrants them. “I couldn’t confidently say that I know what the appropriate path will be,” he said.

While Fed officials previously penciled in a pair of rate cuts for 2025, they continue to be kicked down the road as the U.S. economy remains in limbo. About one-third of interest rate traders are predicting a decrease of 25 bps in July, while 20% believe they’ll be 50 bps lower come September.

Lender reactions

Christopher Brown, a Charlotte-based executive vice president and regional manager for Atlantic Bay Mortgage Group, told HousingWire that tariff rollbacks are a welcome development for lenders, builders and borrowers.

“Any costs reductions, even modest ones, help improve margins or make entry-level homes more viable — something the market desperately needs. It will be interesting to see builder sentiment with the May report,” Brown said.

“From the homebuyer side, the impact is more indirect. If this policy shift contributes to more inventory coming online — especially new construction — it helps balance the market and relieves some of the upward pressure on prices. That’s good news for buyers trying to get in before rates move again.”

Mortgage activity has picked up recently, several lending executives said last week. At New American Funding, for example, co-CEO Patty Arvielo said that May 6 was NAF’s best day for mortgage application volume since 2022. She chalked that up move-up buyers who are using accumulated equity to purchase something larger or more attractive.

Optimal Blue’s rate-lock data for April backs up this anecdotal evidence. The company reported Tuesday that purchase loan locks were up 7.5% compared to March even as rates were volatile, fluctuating in a range of 50 bps. That was driven by increased demand for Federal Housing Administration (FHA) loans and adjustable-rate mortgages (ARMs).

For companies like New York-based digital lender Better, good signs are emerging in specific pockets of consumer behavior.

“In the home equity space, we’ve actually seen volatility spark positive momentum,” said Kevin Ryan, the company’s chief financial officer. “It’s motivating customers to make proactive financial moves, like consolidating debt or tapping into their equity to strengthen their financial position.”

Insurance and tax implications

Other factors like homeowners insurance and property taxes are worth keeping an eye on as the spring housing market nears its end and potential borrowers mull a summer move while schools are out of session.

Data released last month by ValuePenguin showed that 67% of respondents saw an increase in insurance costs in 2024, although that was down from 72% in 2023. Fears of becoming uninsurable are most pronounced among younger homeowners as 84% of Gen Z respondents said they worry about losing their coverage, compared to only 27% of baby boomers.

ATTOM reported last month that the average tax bill for a single-family home in 2024 was $4,172, up 2.7% from the prior year. That was due in large part to a 4.8% increase in home-price appreciation after values declined by 1.7% in 2023.

“From the servicer perspective, proactively addressing borrower property tax and insurance increases is a top customer service priority,” Sagent CEO Geno Paluso said. “Sagent helps servicers monitor and address escrow balance changes in real time, enabling servicers to educate borrowers on evolving monthly budgets and offer hardship options, if needed.”

Brown said that Atlantic Bay Mortgage has seen many applicants who qualify based on mortgage rates and loan sizes but are locked out of a home purchase due to taxes and insurance costs. This is particularly true in coastal states and rapidly growing metro areas.

“It’s affecting both qualification and perception,” he said. “Even if someone can qualify, they’re often walking away because the monthly (payment) feels higher than expected. Transparency, early disclosures, and proactive conversations about tax and insurance estimates are more important than ever in today’s environment. We’re coaching our teams to lead with the ‘true monthly’ earlier in the process.”