The mortgage rate forecast is not too promising

Even with a 6-basis-point drop in the average for the 30-year fixed mortgage, new borrowers are still dealing with rates well above 7%, Freddie Mac said.

The Freddie Mac Primary Mortgage Market Survey reported the 30-year FRM at 7.12% as of Sept. 7, versus 7.18% one week ago and 5.89% for the same period in 2022.

Recent rate movements in reaction to the U.S. economy is a good news-bad news situation.

"The economy remains buoyant, which is encouraging for consumers," Freddie Mac Chief Economist Sam Khater said in a press release. "Though while inflation has decelerated, firmer economic data have put upward pressure on mortgage rates which, in the face of affordability challenges, are straining potential homebuyers."

The 15-year FRM also declined versus the prior week, but by only 3 basis points, to 6.52. For the same week last year, the 15-year FRM was at 5.16%.

Rates declined even though in the past week, the benchmark 10-year Treasury shot up from a high of 4.08% on Aug. 31 to 4.28% mid-morning on Sept. 7. A simple explanation for the divergence in movements is that it is being taken account of by the abnormally high spreads between mortgages and Treasurys.

Using the Freddie Mac data, the current 284 basis point spread still has plenty of room to run before retreating to a more upper end range of 200 basis points.

Meanwhile, the 30-year FRM rates as reported through Zillow's rate tracker do reflect the week-to-week gain in the 10-year Treasury. It rose 19 basis points as of Thursday morning to 7.11% from last week's average of 6.92%.

Strong growth in the services sector as well as last week's inflation news caused this rise in rates.

"Prices and economic activity in the service sector — which comprises about three-quarters of overall GDP — increased by more than expected in August, helping to push bond yields and mortgage rates higher," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans in a Wednesday evening statement.

Meanwhile, the Personal Consumption Expenditures Index, while meeting expectations, still indicated that the move into disinflation was stalling.

"Given constraints on labor supply, rising demand for services has been a concern for the Federal Reserve, and this week's reports will likely renew concerns that the battle to bring down inflation may not be over," Divounguy said. "As a result, traders are adjusting to the fact that monetary policy could remain in restrictive territory for much longer."

While many are expecting the Federal Open Market Committee not to raise short-term rates at its next meeting, sentiment exists supporting future increases.