The price of America’s most popular home loan rose again this week, dealing another blow to struggling home shoppers staring at the steepest borrowing costs in 20 years.
The average 30-year fixed-rate mortgage rate — now flirting with the 7% mark — is more than double what it was at the start of the year.
Even as home prices continue to slow, dramatically higher financing costs are pushing buyers to the sidelines — or out of the market entirely.
“The numbers just don’t work for them anymore,” says Lisa Sturtevant, Bright MLS economist in the Mid-Atlantic region.
“This 7% streak is also a mental hurdle for buyers, even those who are still eligible,” she says. “Maybe they are waiting to see if prices will come down.”
However, while many potential buyers have stopped looking, others have found some kind of workaround for higher rates.
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30-year fixed-rate mortgage
Mortgage giant Freddie Mac reported Thursday that the average 30-year mortgage rate jumped to 6.92% this week, up from 6.66% a week ago. Last year at this time, the rate averaged 3.05%.
The 30-year average hasn’t been this high since April 2002.
“We continue to see a tale of two economies in the data: robust job and wage growth keeps consumer balance sheets positive, while persistent inflation, stagnation fears and housing affordability are reducing housing demand rapidly,” says Sam Khater, chief economist at Freddy Mac.
“The next several months will undoubtedly be important for the economy and the housing market.”
15 Years Fixed Return Mortgages
Freddie Mac says the typical 15-year mortgage rate was 6.09% this week, up from 5.90% last week.
A year ago at this time, the 15-year average was 2.30%.
Buyers today face a different reality than they were just a few months ago when many had to bid well above the asking price and forego the contingencies of registering a home.
With affordable home prices falling, sales have plummeted. In August, sales fell for the seventh month in a row and were down 20% from a year earlier, according to the latest National Association of Realtors data.
5 year adjustable mortgage
The five-year adjustable-rate mortgage rate (ARM) averaged 5.81% this week, up from 5.36% last week.
This time last year, the five-year ARM averaged 2.55%.
ARM starts with a fixed interest rate period – usually three to 10 years. The rates are usually lower than they are on a fixed rate loan, such as the most common 30-year mortgage.
But once the initial term expires, the price on the ARM is adjusted – up or down – based on a criterion such as the base price.
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The case for higher mortgage rates
The Fed has raised its benchmark interest rate five times this year in order to slow the economy, but the uncomfortably fast rise in consumer prices persists.
That means more rate hikes are coming — and while mortgage rates don’t directly align with changes in the Federal Reserve’s rate, they are affected by them.
At the last meeting of the Federal Reserve, officials said that the only way to combat inflation is to stay on the firm path of restrictive monetary policies.
“Many participants emphasized that the cost of taking too little action to bring down inflation is likely to outweigh the cost of taking too much,” according to the recently released minutes of the meeting.
Low Price Alternative
Some buyers are trying to avoid today’s high borrowing costs by locking in the mortgage rate for a shorter period of time.
“The popularity of adjustable rate mortgages is growing so rapidly that many borrowers believe they will have the opportunity to refinance into a fixed rate mortgage at some point before their ARM adjustment,” says Cory Burr, a Washington real estate agent. metropolitan area.
He says borrowers considering this path should consider adjustable rate loans with initial terms of seven or 10 years.
“It will increase the chances of refinancing,” Burr says.
Mortgage applications this week
Mortgage activity is slowing again amid rising rates, according to a weekly survey from the Mortgage Bankers Association.
Refinancing requests and purchases decreased 2% compared to the previous week.
Refis is down 86% from a year ago, while purchase loan applications are down 39%.
Mike Fratantoni, chief economist at MBA, said ARM’s share of orders also remained “pretty high” at 11.7%.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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