Long-term mortgage rates below 5% for the first time in 4 months

The average US long-term mortgage rate fell below 5% for the first time in four months, days after the Federal Reserve raised its main lending rate in an aggressive effort to rein in inflation.

The 30-year rate fell to 4.99% from 5.3% last week, mortgage buyer Freddie Mac reported Thursday. A year ago, the rate was 2.77%.

The average rate on 15-year fixed-rate mortgages, popular with home refinancers, fell to 4.26% from 4.58% last week.

“Mortgage rates have remained volatile due to the tug-of-war between inflationary pressures and a clear slowdown in economic growth,” said Sam Khater, chief economist at Freddie Mac. rates remain variable, especially as the Fed tries to navigate the current economic environment.”

Last week, the Fed raised its main lending rate by three-quarters of a point, the second such increase in less than two months. The central bank also raised its benchmark rate by half a point in May, beginning its aggressive turn to try to quell four-decade high inflation.

Consumer prices soared 9.1% over the past year, the biggest annual increase since 1981. The Labor Department’s producer price index, which measures inflation before it reaches consumers, rose 11, 3% in June compared to the previous year.

Rapidly raising rates risks pushing the US economy into a recession, but it is the Fed’s most powerful tool to get price increases back to their 2% annual target.

The government reported last week that the US economy shrank from April to June for the second consecutive quarter, contracting at an annual rate of 0.9% and raising fears that the nation is edging closer to a recession.

The Commerce Department-reported decline in gross domestic product, the economy’s broadest gauge, followed a 1.6% annual drop from January to March. Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession.

Higher loan rates have put off home seekers and chilled a housing market that has been active for years. The National Association of Realtors reported last month that sales of previously occupied American homes slowed for the fifth straight month in June.

Home prices have continued to rise, albeit at a slower pace than earlier this year, even as sales slowed. The national median home price rose 13.4% in June from a year earlier to $416,000. That’s an all-time high based on data going back to 1999, NAR said.

Layoffs in the housing and loan sectors have already started. Among those reporting job cuts in recent months are online mortgage company LoanDepot, online real estate broker Redfin and Compass.

The nation’s largest bank by assets, JPMorgan Chase, has laid off hundreds of people from its mortgage unit and reassigned hundreds of others.