Mortgage rates fell for the first time since March on news that the economy is cooling down.

The average rate on the 30-year fixed-rate mortgage fell to 7.03% in the week ending May 9, according to rates provided to NerdWallet by Zillow. It was a decrease of 29 basis points from the previous week. (A basis point is one one-hundredth of a percentage point.)

Slower job growth leads the way

It was a welcome decline. The 30-year mortgage rate had gone up five weeks in a row, throughout April and the beginning of May. Rates dropped after the May 3 release of the April jobs report, in which the Labor Department announced that the economy grew by 175,000 jobs. Forecasters had expected a bigger number.

“Mortgage rates decreased this week as labor market and housing data continue to point to a slowdown ahead,” said Orphe Divounguy, senior economist for Zillow Home Loans, in a news release. He said investors are convinced that the Federal Reserve will cut short-term rates later this year as inflation subsides. That conviction helped to push mortgage rates down this week.

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It’s hard to afford a house

Although mortgage rates fell this week, they’re higher than a year ago. House prices have gone up, too. That spells bad news for affordability.

A year ago this week, the 30-year mortgage averaged 6.51%, so it has gone up half a percentage point in one year. Meanwhile, the National Association of Realtors reported that the median home price nationwide reached $389,400 in the first quarter of 2024, up 5% from a year earlier.

The collision of higher rates and higher prices creates financial damage. The typical home buyer in this year’s first quarter ended up with a mortgage payment that was $173 higher than the typical buyer a year earlier, according to the NAR report.

But demand for homes is high

House prices are going up despite the affordability problems because there aren’t enough houses on the market to meet demand. The shortage is partly caused by the reluctance of homeowners to sell their homes if it means abandoning the low mortgage rate they got three years ago, says Carolyn Morganbesser, senior manager of mortgage originations for Affinity Federal Credit Union, with branches in New Jersey, New York and Connecticut.

Potential buyers pounce whenever a for-sale sign pops up on a lawn, Morganbesser says. “As quickly as it comes on the market, it goes — regardless of the rates, because people are desperate for housing,” she says.

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