Mortgage rates jumped a bit last week for a few reasons, but mainly because of new details emerging on the latest government spending bill to make its way through Congress —and big changes could be on the horizon for Fannie Mae and Freddie Mac that may have even bigger impacts on the housing market.

The average rate on a 30-year fixed rate conventional loan jumped to 6.922%  - from 6.818% the week before. 

But just because rates are high, it doesn't mean you need to settle for a bad deal. Last month, a realtor helped her buyer save $4,500 upfront—just by receiving our Friday Rate Alert text . Her client was already under contract, working a lender they’d used before who quoted them at a 6.375% with over $3,000 in points (ouch). After seeing our weekly alert, she introduced us to her client- who we were able to secure a 6.125% with a $1,500 credit. 

That’s $4,500 in day-one savings, PLUS $695 per year in interest saved by working with LendFriend!!! Make sure you're signed up for our weekly Friday rate texts. It could make a HUGE difference in your homebuying decision. 

Latest Spending Legislation Causes Deficit Concerns
 
The expansive tax-and-spending legislation, dubbed the "One Big Beautiful Bill," passed the House last week. Analysts warn that the bill could add between $2.5 to $5.3 TRILLION to the national debt over the next decade, which once again raises alarms about fiscal sustainability of the US government.

Not great timing since Moody's just downgraded the US credit rating for the same reason.  The bond market reacted swiftly, with a recent $16 billion auction of 20-year Treasury bonds drawing weak demand, pushing treasury yields to their highest levels since 2020 . Mortgage rates are comprised of the 10-year treasury PLUS an additional spread, so any increase to treasury yields naturally pushes up mortgage rates. 

The higher the deficit goes, the riskier US government debt becomes. Thomas Jefferson said, “With great risk comes great reward.”  And for investors, that reward means higher interest rates. The bill hasn't gone through the Senate yet, and many expect the Senate to push through some significant revisions. We'll see what effects these revisions have to the bill, and more importantly, investors reaction to the bill.


Home Sales Diverge
 
April's housing numbers showed just how differently the new home and existing home markets are performing.

Existing-home sales dropped 0.5% to a 4.0 million annualized pace—the slowest April since 2009. Median prices hit a record $414,000, and many buyers are still sidelined by affordability challenges.

Inventory rose to 1.45 million units, and homes lingered on the market longer—29 days on average, up from 26 in March.

Some good news - first-time buyers made up 34% of the market, the highest share in nearly 5 years! It's a good sign that affordability is improving (and first-time buyers are tired of waiting).

Meanwhile, new-home sales surged 10.9%, hitting a 743,000 annualized pace—the highest since early 2022. Builders have been offering incentives like buydowns and discounts, especially in areas where builders are holding too much inventory. TBD how long this lasts. "Housing starts have already declined, suggesting that the availability of new builds will fade from here," said Ben Ayers, a senior economist at Nationwide. "Additionally, the buildup in existing homes for sale should shift some demand away from the new home market over 2025."

Big Changes for Fannie & Freddie?
 
Last week, President Trump floated removing Fannie Mae and Freddie Mac from federal conservatorship, a move that could reshape the mortgage market.

These agencies back more than 60% of all U.S. mortgages and have been under government control since 2008 (to avoid collapsing as a result of the Great Recession). Privatizing them could deliver a big one-time return to the Treasury (~$300B) through the sale of its equity stakes in the companies - but how would that impact the average homebuyer?

Analysts warn that privatization could lead to higher mortgage rates, fewer affordable options for first-time buyers, and tighter credit conditions across the board. It's essentially removing the largest safety net in the housing finance system since the government will no longer be backing 60% of the mortgages originated in the US. 

Mortgage industry groups are already lobbying for guardrails if privatization goes forward—like maintaining affordable lending quotas and access to long-term fixed-rate loans.


Rate Cut Predictions
 
The Federal Reserve remains in a wait-and-see approach as tariffs and now this spending bill continue to unfold. Some members aren't comfortable talking about cuts at all, while others say they'd revisit it in 3 to 6 months. 
  
2 months ago, a rate cut on June 18th was on the table. Now September 17th seems more likely. Another reminder that you can't count on the Fed's predictions - and shouldn't  rely on rates falling in the short term as part of your homebuying decision in this economy!