The rate on America’s most popular home loan topped 7% for the first time in 20 years as the housing market faces a potentially prolonged downturn.
Rapidly rising mortgage rates have hit home buying, with forecasts showing continued weakness through 2023.
Home sales and new listings have hit record lows since the early days of the pandemic, with more than 20% of sellers cutting their sales price in September, according to real estate firm Redfin.
“People have come to Jesus for the housing market,” Redfin CEO Glenn Kelman said in a statement. interview on CNBC this week.
“So people who are still in the market before Thanksgiving are itching to sell, but most people are just pulling their listings.”
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30-year fixed-rate mortgages
A 30-year fixed-rate mortgage averaged 7.08% this week, up from 6.94% last week, mortgage finance giant Freddie Mac reported Thursday.
Last year at this time, the 30-year rate averaged 3.14%.
With rates above 7%, many homebuyers are settling in for a long wait on the sidelines as higher borrowing costs have put them out of the market altogether.
“Homebuyer affordability took a huge hit in September,” said Edward Seiler, associate vice president for housing economics at the Mortgage Brokers Association (MBA).
“With mortgage rates continuing to rise, the purchasing power of borrowers is shrinking,” he said. “The median loan amount in September was $305,550, much lower than the February peak of $340,000.”
Those who are buying face much higher monthly payments. The national median mortgage payment has increased by $558, or 40.4%, since the beginning of 2022, according to an MBA index which measures how monthly mortgage payments vary, relative to income, over time.
15-year fixed-rate mortgages
The average rate in a 15-year fixed-rate mortgage it was 6.36% this week, up from 6.23% last week, says Freddie Mac.
A year ago, the 15-year mortgage loan averaged 2.37%.
Part of the reason mortgage rates have shot up so high, and so fast, is the Fed’s decision. unwavering walks at its trend-setting interest rate, an effort to slow the economy and reduce skyrocketing inflation.
While the Federal Reserve doesn’t set mortgage rates directly, changes to its fed funds rate ultimately influence what consumers pay to borrow money for a variety of items, including cars and homes.
5 year adjustable rate mortgage
The typical rate on a five-year adjustable-rate mortgage, or ARM, was 5.96% this week, compared to last week, when it averaged 5.71%.
Last year at this time, the five-year ARM was averaging 2.56%.
ARMs start with a period of fixed interest rates, usually between three and 10 years. Rates are typically lower than fixed-rate loans, such as the more popular 30-year mortgage.
After the initial term, the rate on an ARM will adjust up or down based on a benchmark such as the prime interest rate.
What is happening with house prices?
While home prices are moderating in some areas, they remain relatively high in most markets. Combined with higher borrowing costs, buying a home is no longer possible for many Americans.
“Many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices even lower,” said Sam Khater, chief economist at Freddie Mac.
the Case-Shiller House Price Index August marked the fifth consecutive month of slowdown in annual house price appreciation. The index posted a 13% gain, down from 15.6% in July.
According to CoreLogic’s Home Price Index forecast, annual growth will slow to 9% in December and less than 1% by the end of March 2023.
High mortgage rates are severely impacting affordability in West Coast and West Mountain markets, says CoreLogic.
Mortgage applications continue to fall
An index that measures the volume of mortgage applications fell another 1.7% last week compared to the previous week, according to the Weekly MBA Survey.
Specifically, mortgage applications to buy homes fell 2% at the slowest pace since 2015, while refinancing applications were largely unchanged. Compared to last year, purchase mortgages have dropped by 42% and refis by 86%.
“The current trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” said Joel Kan, vice president and deputy chief economist at MBA.
The average rate on a 30-year fixed mortgage is expected to peak in the last quarter of this year and then begin to fall in 2023, according to the latest MBA Forecast.
“The MBA forecast expects housing market and economic weakness in 2023 to result in a 3% decline in purchase originations, while refinancing volume is projected to decline by 24%,” Kan said.
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