The average interest rate on America’s most popular mortgage hit a 14-year high this week, putting off even more would-be buyers amid a double whammy of high home prices and rising borrowing costs.
“The monthly payment that people have to pay to buy this home is just out of reach,” Mark Zandi, chief economist at Moody’s Analytics, said on the Plain English podcast.
“Many potential first-time home buyers are now literally locked out of the housing market.”
And with this month’s surprisingly high inflation reading, borrowing costs could rise even further as the Federal Reserve plans more hikes.
30 year fixed rate mortgages
The average interest rate on a 30-year fixed mortgage hit 6.02 percent this week, up from 5.89 percent a week earlier and more than double what it was a year ago, mortgage finance giant Freddie Mac said Thursday.
“Mortgage rates continued to rise alongside higher-than-expected inflation numbers this week, topping 6% for the first time since late 2008,” says Sam Khater, chief economist at Freddie Mac.
“Although rising interest rates will continue to dampen demand and put downward pressure on home prices, inventory remains insufficient. This shows that while house price declines will likely continue, they should not be large.”
15 year fixed rate mortgages
The interest rate on a 15-year fixed-rate mortgage averaged 5.21 percent this week, up from 5.16 percent last week, Freddie Mac reports.
A year ago at this time, the 15-year rate averaged 2.12%.
Higher rates are hurting home sales and sellers are having to lower their prices. This gives some buyers the upper hand in negotiations, but it’s not always enough.
“Unfortunately, it’s increasingly difficult for buyers to use their newfound power thanks to affordability pressures from rising mortgage rates and a shortage of homes listed for sale,” says Taylor Marr, Redfin’s deputy chief economist. in a market update.
“Today’s average buyer is paying less than list price, but still struggles to find a home that fits their criteria and budget.”
5 year mortgage with adjustable interest rate
The average rate on a five-year adjustable-rate mortgage (ARM) jumped to 4.93%, from last week’s average of 4.64%.
A year ago at this time, the 5-year ARM averaged 2.51%.
ARMs start out at lower interest rates than longer-term loans, but after their initial terms, they adjust each year — up or down — in lock step with the prime rate or other benchmark.
Borrowers can potentially refinance to a lower rate once the initial term is up, but that’s only if interest rates drop. They could easily go higher depending on the health of the economy.
Another dip in mortgage applications
Last week, mortgage applications fell by 1.2% compared to the previous week, according to the latest survey by the Mortgage Bankers Association (MBA).
The decline was driven by applications to refinance existing loans, which fell 4% from the previous week and were 83% lower than the same week last year.
Applications for home equity loans rose, but by just 0.2%.
“Higher mortgage rates have pushed refinancing activity down more than 80% since last year and helped keep more homebuyers on the sidelines,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said this week.
Rates fall into the ‘red zone’
Phoenix Realtor Joe Bourland says affordability took a nosedive when mortgage rates started to rise earlier this year – and the market is feeling it.
“Once those rates really started to rise to 5, the market turned on a dime,” he says. “It was really dramatic.”
A buyer purchasing a median-priced home now pays a monthly mortgage of $2,100, up 66% from last year, according to Realtor.com. And new listings are down for 10 straight weeks.
“We are entering a red zone for mortgage rates as consumers will likely wait out the market if rates rise to 7%,” says Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, DC.
“This level is much higher than the interest rates seen just nine months ago and the expensive carrying costs are shocking to most prospective buyers.”
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.