Mortgage rates drop below 5% for first time since April | CNN Business

Mortgage rates dropped for the second week in a row, falling below 5% for the first time since mid-April.

The 30-year fixed-rate mortgage averaged 4.99% in the week ending August 4, down from 5.3% the week before, according to Freddie Mac. But that is still significantly higher than this time last year when it was 2.77%.

Rates rose sharply at the start of the year, hitting a high of 5.81% in mid-June. But since then, economic concerns have made them more volatile.

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” said Sam Khater, Freddie Mac’s chief economist.

The up and down is expected to continue, he said.

“The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

The drop comes as surprisingly positive reports for some economic indicators counterbalanced the talk of looming recession, said George Ratiu, Realtor.com’s manager of economic research.

“Without a clear direction, markets are confining mortgage rates to move within a tighter range, as the sharp upward push has moderated,” he said.

In response to high inflation the Federal Reserve raised its benchmark interest rate by 75 basis points last week, the second hike of that size in as many months.

The Federal Reserve does not set the interest rates borrowers pay on mortgages directly. Instead, mortgage rates tend to track 10-year US Treasury bonds. But they are indirectly impacted by the Fed’s efforts to tame inflation.

As for consumers, he said, they continue to spend, amassing a record $16.2 trillion in household debt according to data the Federal Reserve released this week.

“The big question for consumers is whether companies will over-react to the recession concerns and start trimming payrolls,” Ratiu said. “A sharp pullback in hiring could have a direct impact on people’s ability to keep spending, especially with today’s high inflation.”

Affordability still the biggest challenge

The higher costs to finance a home have already had an impact on buyers. Sales of both new construction and existing homes have fallen in recent months as buyers take a break from house hunting.

Buyers are finding homes even less affordable as inflation takes a larger chunk of their income and the rising cost of borrowing has reduced their purchasing power.

A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 2.77% had a monthly mortgage payment of $1,277, according to numbers from Freddie Mac.

Today, a homeowner buying the same priced house with an average rate of 4.99% would pay $1,673 a month in principal and interest. That’s nearly $400 more each month.

With increased borrowing costs setting an affordability ceiling for many buyers, home sales are dropping, said Ratiu. At the same time, inventory is improving.

“This brought a welcome sign in this year’s real estate markets – price cuts,” Ratiu said.

However, with buyers dropping out, some sellers are holding back too, feeling they have missed the market’s peak, according to Realtor.com. Homeowners with equity may not be compelled to sell in this slower market with higher financing costs.

“As the number of new listings softens, it raises the concern that the nascent improvement in inventory may prove elusive as we approach the latter stages of summer,” said Ratiu.

Mortgage rates rose this week after falling for six straight weeks ...

Mortgage rates dip back below 7% | CNN Business

Mortgage rates fell this week after surpassing 7% for the first time in 20 years last week.

The 30-year fixed-rate mortgage averaged 6.95% in the week ending November 3rd, down from 7.08% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate stood at 3.09%.

Mortgage rates continue to hover around 7%, causing the once-hot housing market to cool considerably, said Sam Khater, Freddie Mac’s chief economist.

The 30-year fixed rate had risen almost every week since late August and has more than doubled since the beginning of the year.

The rapid rise has been fueled by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank’s rate hikes, investor’s concerns about a recession and mixed economic news has made mortgage rates increasingly volatile over the past several months.

The Fed announced yesterday it would raise its benchmark interest rate by another 75 basis points, the sixth rate increase this year and the fourth-consecutive hike of that size.

“Yesterday’s interest rate hike by the Federal Reserve will certainly inject additional lead into the heels of the housing market,” Khater said.

He added that demand is declining as some potential buyers try to navigate the unpredictable landscape, while others remain sidelined because they cannot qualify for a loan.

Inflation remains a challenge

Following the Fed’s meeting on Wednesday, Chairman Jerome Powell said that the possibility of a “soft landing,” in which the economy cools without crashing into a recession, has narrowed but it is still possible.

“The inflation picture has become more and more challenging over the course of this year,” he said. “That means we have to have policy be more restrictive, and that narrows the path to a soft landing.”

While the Fed does not set the interest rates borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

Both two-year and 10-year Treasury yields rose higher in the wake of Wednesday’s announcement, a sign that capital markets see a rising probability of recession in 2023, said George Ratiu, Realtor.com’s manager of economic research.

“With inflation still running at a 40-year high and the Fed expecting a few more rate increases to combat it, mortgage rates will experience upward pressure through the end of 2022,” said Ratiu.

Rates moved lower over the past week because yesterday’s Fed announcement was already priced into the mortgage market, said Lawrence Yun, chief economist at the National Association of Realtors. But inflation is not where the Fed would like it to be yet and rates are expected to remain volatile.

“Mortgage rates are near 20-year highs, and that hurts homebuyers,” said Yun. “Once inflation is contained, mortgage rates will start to drift lower. It may be another year or two before that happens.”

More people priced out

As rates rise, homeownership becomes increasingly out of reach for people who can’t afford, or don’t even qualify for a home loan.

With mortgage rates about 4 percentage points higher than last year, a buyer of a median-priced home is looking at a monthly mortgage payment that is $1,000 higher, according to Realtor.com.

“This dramatic jump in financing costs has effectively shrunk most buyers’ budgets,” said Ratiu.

It isn’t just mortgage rates that have gone up from last year, home prices have significantly increased as well.

Based on September 2021’s median home price and 30-year fixed mortgage rate, and assuming a 20% down payment, a typical homebuyer would have been looking at a $1,296 monthly payment, according to Realtor.com. This year, due to both higher prices and mortgage rates that are hovering around 7%, a typical buyer is facing a $2,296 monthly payment.

In order for this year’s buyer to have the same monthly payment as last year, the median home price would have to decline by 45%, to about $235,000.

Prices aren’t dropping that much, but they are starting to creep down in some areas.

“Most homes are priced based on comparable properties that sold in the past six months, a period which does not capture today’s much-higher rates and buyers’ inability to afford them,” said Ratiu. “With household incomes lagging inflation and borrowing costs still rising, we can expect transactions to continue declining, and prices to continue to fall.”

Are home prices still going up? What's happening with mortgage ...

Potential buyers remained reluctant to take the plunge on financing a home purchase even as mortgage rates fell for the fourth straight week.

Mortgage applications decreased 2% the week ending Dec. 2 compared to the previous week. And the average loan size for a purchase application was at its lowest level since January 2021.

Meanwhile, the average rate for a 30-year fixed mortgage trended down to 6.33% as of Dec. 8, according to the latest data from Freddie Mac. The fixed-rate mortgage has more than doubled from a year earlier when it averaged 3.1%.

The pandemic-era housing boom, combined with decades-high inflation and volatile mortgage rates, are forcing prospective homebuyers and homesellers to sit on the sidelines and wait for the dust to settle.

HOUSING:The 10 best real estate markets of 2023: Goodbye COVID boomtowns, hello mid-sized markets

Learn more: Best mortgage lenders

EXCLUSIVE:After little progress on lending discrimination, a mortgage fairness crisis looms

“Mortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth,” said Sam Khater, Freddie Mac’s chief economist. “While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.”

What’s happening with mortgage rates?

Over the last four weeks, mortgage rates have declined by three-quarters of a point, the largest decline since 2008, according to Khater.

In late October, the average rate on a 30-year fixed rate mortgage pushed past 7%. But with signs that inflation is cooling, the Federal Reserve could ease up on its aggressive rate hikes, and mortgage rates could have peaked, =experts say.

The 30-year fixed-rate mortgage averaged 6.33% as of December 8, 2022, down from last week when it averaged 6.49%. A year ago at this time, the 30-year fixed-rate mortgage averaged 3.1%.

The 15-year fixed-rate mortgage averaged 5.67%, down from last week when it averaged 5.76%. The 15-year fixed-rate mortgage averaged 2.38% a year ago.

“Despite the ongoing decline in mortgage rates that started in October, prospective homebuyers continue to delay decisions to purchase homes, even as home prices flatten or fall,” says Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “The average loan size for a purchase application last week was at its lowest level in nearly two years, another indication that home prices are cooling.”

HOUSING MARKET FIRST-TIMER?:15+ real estate terms you should know, from FICO to escrow

How are mortgage rates affecting affordability?

Currently, the typical family cannot afford to buy a median-priced home as the qualifying income exceeds earned income, says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors.

However, housing affordability rose about 8% in the last four weeks as mortgage rates moved closer to 6%, she says.

“If inflation continues to slow down, mortgage rates may stabilize near 6% in 2023. With a 6% mortgage rate, housing will become more affordable for many buyers,” she says. “In this scenario, the typical family will earn about $1,000 more than the income needed to purchase a mid-priced home. With more buyers back in the market, the housing market may turn around at the beginning of the new year.”

FIXED VS ADJUSTABLE MORTGAGE RATE:Mortgage rates top 7%. Is a fixed or an adjustable rate the best bet right now?

What is holding homebuyers back?

Fear of a recession and high mortgage rates have given buyers pause. Many people have been priced out of the market altogether and small drops in the interest rate will not make a difference, said Lisa Sturtevant, chief economist at Bright MLS.

Affordability remains a big constraint in the market. Over the past three years, home prices have increased by more than 40% nationally.

“In 2019, a family needed an income of about $52,000 to qualify to purchase the median-priced home, and their monthly payment would have been about $1,220,” says Sturtevant. “Fast forward, homebuyers now need an income of nearly $100,000 to qualify for the median-priced home, and the typical monthly payment has shot up to more than $2,200.”

Even as rates decrease and house prices soften, economic uncertainty continues to limit homebuyer demand as we enter the last month of the year, says Khater.

REAL ESTATE EXPLAINED:Housing market grinding to a halt? High mortgage rates bring sales and listings down

Can homebuyers time mortgage rates?

Prospective buyers may be tempted to try to “time” rates to try to jump into the market when rates dip, but timing rates is difficult, says Sturtevant.

Buyers would be better served by shopping for rates and getting quotes from multiple lenders.

“There is a lot of variability in rates, terms, and mortgage products in this changing market,” she says.

MORTGAGES:Fannie Mae, Freddie Mac will back mortgages of more than $1 million in 2023

What’s happening with the housing market?

Pending home sales slid for the fifth consecutive month in October, according to the National Association of Realtors. Three of four U.S. regions recorded month-over-month decreases, and all four regions recorded year-over-year declines in transactions.

"October was a difficult month for home buyers as they faced 20-year-high mortgage rates," said NAR Chief Economist Lawrence Yun. "The West region, in particular, suffered from the combination of high interest rates and expensive home prices. Only the Midwest squeaked out a gain."

Total housing inventory at the end of October was 1.22 million units, which was down 0.8% from both September and one year earlier (1.23 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in September and 2.4 months in October 2021.

"Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers," Yun added. "In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8."

Are home prices still rising?

Even though home prices remain high year-over-year, they’re not increasing at the same pace as the year before.

Whereas last October, the national median existing-home price for all housing types rose by 13% from the previous year, in October 2022, home prices rose by only 6.6% year-over-year.

The median existing-home price for all housing types in October was $379,100, a gain of 6.6% from October 2021 ($355,700), as prices rose in all regions. This marks 128 consecutive months of year-over-year increases, the longest-running streak on record.

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

Mortgage rates top 7% for the first time since 2002 | CNN Business

Mortgage rates rose again this week, topping 7% for the first time since 2002.

The 30-year fixed-rate mortgage averaged 7.08% in the week ending October 27, up from 6.94% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate stood at 3.14%.

The last time the average rate surpassed 7% was in April 2002.

Mortgage rates have risen almost every week since late August and have more than doubled since the beginning of the year.

The rapid rise has been fueled by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank’s rate hikes, investor’s concerns about a recession and mixed economic news has made mortgage rates increasingly volatile over the past several months.

The rising rates are leading to stagnation in the housing market, said Sam Khater, Freddie Mac’s chief economist.

“As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month,” said Khater. “Many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money up front or have less than perfect credit will pay more.

Inflation remains stubborn

While the Fed does not set the interest rates borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

This week the 10-year yield remained above 4%, a level last seen in 2008.

Investors are anticipating another rate hike at next week’s Fed meeting, said Hannah Jones, economic data analyst at Realtor.com.

Analysts expect the central bank to announce another 75-basis-point hike since the most recent inflation data has not shown sufficient signs of cooling. If that happens, it will be the fourth 75-basis-point hike in a row, marking the largest series of Fed rate hikes in more than three decades.

Affordability continues to take a hit

Higher mortgage rates are making it even harder for prospective buyers to afford a home.

Over the past year, mortgage rates have climbed nearly four percentage points and listing prices have increased 13.9%. That has made the monthly payment on a median priced home close to 75% higher today compared to one year ago, according to Realtor.com.

At this time last year, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.14% had a monthly mortgage payment of $1,339, according to calculations from Freddie Mac.

Today, a homeowner buying the same priced house with an average rate of 7.08% would pay $2,093 a month in principal and interest. That’s $754 more each month.

“Home shoppers are hamstrung by the rising cost of homeownership and inflation, which has led many to drop out of the market,” said Jones. She pointed to the recent report on existing home sales, which declined 23.8% year-over-year in September marking the eighth consecutive month of slowing, according to the National Association of Realtors.

Demand for mortgages has dropped dramatically as well, with applications at their slowest pace since 1997, according to the Mortgage Bankers Association.

Homebuyers who remain on the hunt are finding homes they can afford in lower priced markets, Jones said. “As a result, affordable markets are seeing sustained housing demand.”

But as long as mortgage rates and prices remain high, Jones said, many buyers will remain on the sidelines or downsize their expectations.

“Some may find renting to be the better option in the short term, while others may consider other home types such as condos,” said Jones. “Buyers who remain in the market may see lower prices and have some leverage relative to the last few months, though they will have to be cognizant of how higher mortgage rates impact housing costs.”

Mortgage rates see largest decline since 2008 | CNN Business

Mortgage rates dropped for the second week in a row, notching the largest decline since December, 2008.

The 30-year fixed-rate mortgage averaged 5.30% in the week ending July 7, down from 5.70% the week before, according to Freddie Mac. That is still significantly higher than this time last year when it was 2.90%

Rates rose sharply at the start of the year, hitting a high of 5.81% in mid-June. But since then, economic concerns have pushed them lower. The 40 basis point fall offset some of the significant rate increases of May and June.

“Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise,” said Sam Khater, Freddie Mac’s chief economist.

But affording a home still remains a challenge. Mortgage rates are at their highest levels since the late 2000’s and listing prices have grown by more than 8.5% year-over-year for 24 consecutive months, said Joel Berner, Realtor.com’s senior economic research analyst.

If there’s any silver lining for homebuyers, it’s that more homes are hitting the market, he said. In June, active listings increased by the largest annual growth in the history of Realtor.com’s data.

“With more homes on the market, sellers are being forced to compete on prices,” he said. “Though the cost of financing a home remains high relative to recent years, buyers will have more chances to find homes in their price range as the undersupplied and overheated housing market starts to cool.”

Higher rates are also tamping down demand among prospective buyers. Mortgage applications dropped 5.4% in the week ending July 1 from the week before, according to the Mortgage Bankers Association.

“Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance.”

Buyers are finding it harder to buy homes as inflation takes a larger chunk of their income and the cost of borrowing has reduced their purchasing power.

A year ago, a buyer who put 20% down on a median priced $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average rate of 2.90% had a monthly mortgage payment of $1,299, according to calculations from Freddie Mac.

Today, a homeowner buying the same priced house with an average rate of 5.30% would pay $1,733 a month in principal and interest. That’s $434 more each month.

The decline in mortgage rates this week follows recent volatility in the 10-year Treasury yield, which dropped below 2.8% in the first week of July after spending most of June above 3%.

While the Federal Reserve does not set the interest rates borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track 10-year US Treasury bonds. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and with it, mortgage rates.

In addition, continued fears that we are heading into a bear market have driven investors into safer, longer-term bonds, said Berner.

“This inversion might sound ominous, especially in the midst of sustained inflation that both markets and the Fed agree will likely require more fed funds rate hikes to tame, but it remains to be seen whether these market conditions will lead to increases in the unemployment rate or decreases in production that characterize a recession,” he said.

Mortgage rates fall as fears about the US economy loom | CNN ...

Mortgage rates dropped last week as fears grow that the US economy is entering a recession.

The 30-year fixed-rate mortgage averaged 5.30% in the week ending July 28, down from 5.54% the week before, according to Freddie Mac. That is still significantly higher than this time last year when it was 2.80%.

Rates rose sharply at the start of the year, hitting a high of 5.81% in mid-June. But since then, concerns about inflation and the possibility that the US economy may be entering a recession have made them more volatile.

The demand to buy a home continues to tumble as buyers face higher rates, record-high home prices, increased recession risk, and declining consumer confidence, said Sam Khater, Freddie Mac’s Chief Economist.

“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,” Khater said. “Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes.”

Mortgage rates fell as investors anticipated yet another 75 basis-point rate hike from the Federal Reserve at its meeting on Wednesday. It was the second hike of that size in as many months.

The Federal Reserve does not set the interest rates borrowers pay on mortgages directly. Instead, mortgage rates tend to track 10-year US Treasury bonds, which fell last week ahead of the central bank’s meeting. But they are indirectly impacted by the Fed’s efforts to tame inflation.

The Fed also said Wednesday that it may moderate its pace of interest rate increases in the months ahead.

“The statement was welcomed by financial markets as a sign that the Fed expects inflation to slow more noticeably, requiring a less aggressive response,” said George Ratiu, Realtor.com manager of economic research. “These moves are expected to keep upward pressure on borrowing costs, including mortgage rates, moving forward.”

Costs of borrowing grow

Consumers will feel the impact of the Fed’s increase over the next couple of months, Ratiu said, with credit card interest rates and rates for new car loans rising in the next few billing cycles.

“Borrowers who have adjustable-rate mortgages – or those who are expecting to sign up for one soon – can expect to see a bump in rates,” he said.

The higher costs to finance a home are already having an impact. Buyers are finding homes even less affordable as inflation takes a larger chunk of their income and the rising cost of borrowing has reduced their purchasing power.

A year ago, a buyer who put 20% down on a median priced $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 2.80% had a monthly mortgage payment of $1,282, according to numbers from Freddie Mac.

Today, a homeowner buying the same priced house with an average rate of 5.30% would pay $1,733 a month in principal and interest. That’s $451 more each month.

Demand among buyers is cooling off

As a result of the high cost of buying a home, demand among buyers has slowed and many sellers are seeing their properties sit longer on the market.

“For those motivated to sell, price reductions are becoming a go-to strategy,” Ratiu said. “We can expect the re-balancing in housing markets to continue and to pick up speed, especially as we look toward the fall and winter seasons.”

The Federal Reserve’s moves are designed to tamp down inflation by reducing demand.

While home prices have continued to climb to record highs in June, the number of sales is falling.

Applications for mortgages are also dropping, declining last week for the fourth consecutive week, according to the Mortgage Bankers Association.

“Increased economic uncertainty and prevalent affordability challenges are dissuading households from entering the market, leading to declining purchase activity that is close to lows last seen at the onset of the pandemic,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Mortgage rates drop for fifth week in a row | CNN Business

Washington, DC CNN —

Mortgage rates fell once again this week, dipping for the fifth straight week.

The 30-year fixed-rate mortgage averaged 6.31% in the week ending December 15, down from 6.33% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.12%.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates have tumbled in the last several weeks, following data that showed inflation may have finally reached its peak.

Inflation, as measured by the Consumer Price Index, cooled considerably in November and was at its lowest level in nearly a year, according to the Bureau of Labor Statistics’ closely watched index, released on Tuesday.

However, the Fed announced on Wednesday that it will continue to raise interest rates — albeit by a smaller amount than it has been, while acknowledging that inflation is easing. The rate hike was already factored in to where mortgage rates are, but signaled more good news on inflation.

“Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve’s monetary policy reverberated through the economy,” said Sam Khater, Freddie Mac’s chief economist.

“The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand,” he added. “The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high.”

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less-than-perfect credit will pay more than the average rate.

Inflation picture improves

“While this move was largely expected by investors, the Fed signaled to capital markets at yesterday’s meeting that it sees its aggressive monetary tightening having an effect on inflation,” said George Ratiu, Realtor.com’s manager of economic research.

While the Fed does not set the interest rates borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. When that rate goes up, the 30-year fixed-rate mortgage typically goes up, too. When the Treasury rate goes down, so do mortgage rates.

But this isn’t the end of rate hikes.

Fed Chair Jerome Powell mentioned in his remarks that with prices still rising at a high rate, more rate increases are needed and the central bank remains committed to rate hikes until the pace of inflation notches a noticeable slowdown, Ratiu said.

“For investors, the Fed’s tightening still presents the risk of pushing the economy into a recession in 2023,” he said. “However, most economic indicators continue to show signs of resilience. Additionally, this week’s Consumer Price Index data showed continued moderation in the price growth trajectory.”

What this means for real estate markets is that the continued cooling in inflation measures should ease the upward pressure on mortgage rates, said Ratiu.

“While a return to the 3.0% range is not likely in the near future, even a flattening of rates in the 5.5% - 6.0% range in 2023 would offer housing markets an improved foundation,” he said.

Mortgage applications tick up

For people looking to buy a home, and homeowners wanting to sell, the retreat in mortgage rates over the past several weeks has been welcome.

“With more homes available for sale, and more of them sporting price cuts, some buyers are running the math and finding that the slide in rates is offering better options within their budgets,” said Ratiu.

After a month of declines, mortgage applications ticked up last week as buyers looked to take advantage of several weeks of slightly lower rates, according to the Mortgage Bankers Association.

“Overall, applications increased, driven by increases in purchase and refinance activity,” said Joel Kan, MBA’s vice president and deputy chief economist. “However, with rates more than three percentage points higher than a year ago, both purchase and refinance applications are still well behind last year’s pace.”

The MBA expects the recent downward trend in mortgage rates to continue, said Bob Broeksmit, president and CEO of the MBA. These lower rates, he said, “along with moderating home prices, should encourage more homebuyers to return to the market in early 2023.”

Mortgage rates hit 20-year high

After taking a breather last week, mortgage rates rose again – moving even closer to 7%.

The 30-year fixed-rate mortgage averaged 6.92% in the week ending October 13, up from 6.66% the week before, according to Freddie Mac. It is the highest average rate since April 2002. A year ago, the 30-year fixed rate stood at 3.05%.

Mortgage rates have more than doubled in the past year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank’s rate hikes, investor’s concerns about a recession and mixed economic news has made mortgage rates volatile over the past several months.

“We continue to see a tale of two economies in the data,” said Sam Khater, Freddie Mac’s chief economist. “Strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously.”

He said the next several months will undoubtedly be important for the economy and the housing market. Already, home sales are dropping and prices are cooling.

The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money up front or have less than perfect credit will pay more.

Inflation still running hot

The Fed’s efforts to curb inflation are having a profound impact on the mortgage market. But inflation is still higher than expected, suggesting the central bank will continue to aggressively raise interest rates.

The Fed does not set the interest rates borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

“Investors and lenders are reacting to inflation still running at a hot pace, posing significant concerns for the economy and consumers,” said George Ratiu, senior economist and manager of economic research at Realtor.com.

As a result of the higher rates, more prospective buyers have dropped out of the market causing home prices to soften and sales to decrease. But there is still a shortage of available homes for sale in relation to buyer demand, which has kept prices strong.

“The consequences are evident in rent growth and high home prices,” said Lawrence Yun, chief economist for the National Association of Realtors. “Even with an anticipated fall in home prices in some markets – principally in California – homes will continue to be unaffordable, while rents are squeezing non-owners.”

Yun said even with an economic recession looming, the Federal Reserve is unlikely to let up on its aggressive monetary policy of raising interest rates.

“The 10-year Treasury yield broke past 4% this morning, and mortgage rates will be fighting to hold at a 7% average rate in the upcoming weeks,” said Yun.

With fewer people looking for a mortgage to purchase or refinance a home and an uncertain economic picture ahead, credit is getting harder to come by, said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

“We have seen credit tighten as both lenders and borrowers grapple with ongoing economic uncertainty and affordability challenges,” he said. “Despite strong wage and job growth in September, prospective homebuyers remain reluctant to jump into the housing market.”

Affordability still challenging for homebuyers

Higher mortgage rates are making it even harder for prospective buyers to afford a home.

“With incomes lagging behind inflation, homebuyers’ ability to finance a purchase has been slashed by mortgage rates which surged from 3.1% at the start of 2022 to almost 7%,” said Ratiu.

For a family earning the median household income of $71,000 and using a 20% down payment, a typical home purchase budget was $448,700 in January of this year, according to Realtor.com. This week, the same family could only afford a $339,200 home.

And monthly payments have gone up considerably.

A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.05% had a monthly mortgage payment of $1,324, according to calculations from Freddie Mac.

Today, a homeowner buying the same-priced house with an average rate of 6.92% would pay $2,059 a month in principal and interest. That’s $735 more each month.

Mortgage rates rise again, creeping closer to 7% | CNN Business

Mortgage rates rose again this week, stopping just short of the 7% mark.

The 30-year fixed-rate mortgage averaged 6.94% in the week ending October 20, up from 6.92% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate stood at 3.09%.

Mortgage rates have more than doubled since the beginning of this year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank’s rate hikes, investor’s concerns about a recession and mixed economic news has made mortgage rates increasingly volatile over the past several months.

“The 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand,” said Sam Khater, Freddie Mac’s chief economist.

Home sales have been falling, month over month, since February and are now in the longest housing sales slump since October 2007 during the subprime mortgage collapse.

Rate hikes are taking a toll

The Fed’s aggressive rate hikes are taking a toll on the housing market.

While the Fed does not set the interest rates borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

This week, the 10-year US Treasury hit a high not seen since 2008, an indication that mortgage rates could rise even further.

Rising rates have scared off many home buyers. Mortgage applications are now into the fourth month of declines, dropping to the lowest level in 25 years, said Joel Kan, Mortgage Bankers Association’s vice president and deputy chief economist.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” he said. “Residential housing activity, ranging from new housing starts to home sales, have been on downward trends coinciding with the rise in rates.”

Applications to purchase a home were down 38% from a year ago and refinances have fallen off a cliff, down 86% from last year, according to MBA.

But inflation is still running hot, which means rates could go even higher.

“With their next meeting two weeks away, the Fed will continue to take decisive action to bring prices back down to a healthy level,” said Hannah Jones, economic data analyst at Realtor.com.

Affordability remains a challenge

Higher mortgage rates are making it even harder for prospective buyers to afford a home.

“Buyers, builders and sellers alike have taken a step back to consider their best course of action given heightened mortgage rates and persistent inflation,” said Jones.

Home buyer sentiment hit its lowest level since 2011 according to Fannie Mae and home builder sentiment fell for the 10th month in a row this month as construction activity slowed, according to a report from the National Association of Home Builders. Sellers are responding to the shift in the market and pulling back on listing activity, resulting in a decrease in new listings compared to last year.

A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.09% had a monthly mortgage payment of $1,331, according to calculations from Freddie Mac.

Today, a homeowner buying the same-priced house with an average rate of 6.94% would pay $2,063 a month in principal and interest. That’s $732 more each month.

The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money up front or have less than perfect credit will pay more.

“Though price growth has cooled and prices have begun to come down, high and still climbing mortgage rates mean many of today’s buyers face larger home payments than they would have when home prices were at their peak,” said Jones. “Buyers who are able to be flexible may be able to find a deal this fall by zeroing in on affordable areas or by taking advantage of the market conditions and leveraging some bargaining power as homes sit on the market longer.”