‘Housing may need to go through a correction’: Mortgage rates hit 6.29%, Freddie Mac says

‘Housing may need to go through a correction’: Mortgage rates hit 6.29%, Freddie Mac says

The numbers: U.S. mortgage rates continue to climb, adding hundreds of dollars in costs to potential homeowners.

The rise in mortgage rates followed the Federal Reserve raising rates again to combat the worst inflation the economy has faced in 40 years.

The 30-year fixed-rate mortgage averaged 6.29 percent as of Sept. 15, according to data released Thursday by Freddie Mac.

That’s up 27 basis points from last week — one basis point equals one-hundredth of a percentage point.

Rising interest rates are bad news for prospective buyers, potentially adding hundreds of dollars to their mortgage payments.

Mortgage rates are now at highs last seen since 2008, Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in a statement.

The typical mortgage applicant’s monthly payment is $456 more than in January, he added.

As interest rates rose and buyers retreated, the median price of an existing U.S. home fell to $389,500 in August from $403,800 the previous month, the National Association of Realtors said.

A year ago, the 30-year mortgage rate was at 2.88%.

The average 15-year mortgage rate also rose last week to 5.44%.

The adjustable rate mortgage averaged 4.97%, higher than the previous week.

“The housing market continues to face headwinds as mortgage rates rose again this week after the 10-year Treasury yield jumped to its highest level since 2011,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

“Influenced by higher interest rates, home prices are falling and home sales have fallen,” he added.

The country still faces a shortage of homes for sale. And “many homeowners are simply choosing not to sell at all because they don’t want to deal with the tough housing market,” Daryl Fairweather, chief economist at Redfin, told MarketWatch.

“And that means there are fewer homes on the market. So even though buyers are pulling back, sellers are also pulling back,” he added.

Meanwhile, mortgage applications rose in anticipation of further rate hikes last week. Buyers are eager to get in the market before mortgage rates climb even higher.

Ultimately, home prices are falling as a result of higher interest rates, and sellers reacting to lower demand is “a good thing,” Federal Reserve Chairman Jerome Powell said during a news conference Wednesday when he announced the rate hikes.

“Home prices were rising at an unsustainably fast rate,” Powell said.

“In the long term, what we need is for supply and demand to align better so that house prices rise to a reasonable level … and people can afford homes again,” he added. “The housing market may have to go through a correction to get back to that place.”

The yield on the 10-year Treasury note rose TMUBMUSD10Y,
3.749%
up 3.6% in Thursday morning trading.

Thinking about buying a home? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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