Purchase mortgage rates dropped after climbing for two consecutive weeks, reflecting declining consumer confidence and an emerging “technical recession,” amid a higher interest rate environment.

Purchase mortgage rates declined this week to average 5.30%, down from last week’s 5.54%, according to the latest PMMS survey from Freddie Mac. A year ago this time, rates averaged 2.80% The index compiles rates reported by lenders during the past three days.   

“Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices … and declining consumer confidence take a toll on homebuyers,” said Sam Khater, chief economist at Freddie Mac. 

The Fed raised interest rates by 75 bps Wednesday, marking its fourth rate hike this year. While interest rates do not dictate mortgage rates, higher rates make a range of lending more expensive.

The long-term bond market, off which mortgage rates typically are based, has mostly priced-in all future actions by the Fed, and may have already peaked with the 10-year Treasury shooting up to 3.5% in mid-June, said Lawrence Yun, chief economist for the National Association of Realtors. 

Mortgage rates tend to align with the 10-year U.S Treasury yield, which declined 26 basis points in one week to 2.78% Wednesday. 

Gross domestic product, a wide-ranging measure of economic activity, fell by 0.9% in the second quarter, marking the second decline. A total of two consecutive quarters of negative economic growth translates to a recession.

Weakening economic outlook, high inflation and affordability challenges have taken a toll on buyer demand. 

According to the Mortgage Bankers Association (MBA), the market composite index, a measure of mortgage loan application volume, hit the lowest in two decades for the week ending July 22. The refinance index dipped 3.7% from the previous week, and the purchase index decreased 0.77%.

“It’s clear that over the past two years, the combination of the pandemic, record low mortgage rates and the opportunity to work remotely spurred greater demand. Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes,” said Khater.

Sales of newly built homes fell more than 8% in June from the prior month and were 17% lower than June 2021, according to the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau. Existing home sales slid 5% in June from the previous month and declined 14% from June 2021, the National Association of Realtors said.

On HousingWire’s Mortgage Rates Center, Black Knight’s Optimal Blue OBMMI pricing engine, measured the 30-year conforming mortgage rate at 5.596% Wednesday, down from 5.789% the previous week. 

The 30-year fixed-rate jumbo was at 5.165% Wednesday, down from 5.245% the week prior, according to the Black Knight index. 

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.58% with an average of 0.8 point, down from last week’s 4.75%. The 15-year fixed-rate mortgage averaged 2.10% a year ago. 

The 5-year ARM averaged 4.29% this week, down from 4.31% the previous week. The product averaged 2.45% a year ago.