Rates for the 30-year mortgage are more than double what they were last year, further eroding the affordability that many homebuyers found at the height of the pandemic when mortgage rates were at all-time lows.
The average rate for a 30-year fixed-rate mortgage increased to 6.70% for the week ending Sept. 22, according to Freddie Mac's Primary Mortgage Market Survey. This is an increase from the previous week when it averaged 6.29% and is significantly higher than last year when it was 3.01%.
Other loan terms also increased last week. The 15-year mortgage rose to 5.96%, up from 5.44% the week prior and up from 2.28% last year. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) also increased to 5.30%, up from 4.97% the week before and up from 2.48% last year.
"The uncertainty and volatility in financial markets is heavily impacting mortgage rates," Sam Khater, Freddie Mac's chief economist, said.
He added that "the large dispersion in rates" means homebuyers who shop around with different lenders could stand to save money.
Based on a "typical mortgage amount, a borrower who locked-in at the higher end of the range" of current mortgage rates "would pay several hundred dollars more than a borrower who locked-in at the lower end of the range," Khater said.
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The surge in mortgage rates tests home sales
Higher mortgage rates have continued to price some homebuyers out of the housing market, "leading to a significant pullback in transactions," George Raitu, Realtor.com's senior economist, said.
"The 7-month decline in existing home sales is not surprising considering the increasing affordability crisis," Raitu said. "A household earning the median annual income of $71,000 and using a 20% down payment could afford a home priced at $448,700 in January 2022 when rates were 3.1%.
"In contrast, at a 7% mortgage rate, the same household can only buy a $341,700 home – meaning that consumers have lost $107,000 in buying power this year," he continued.
Higher mortgage rates are why home sales – for both new and existing – have declined in recent months, according to the National Association of REALTORS® (NAR) latest pending homes sales index. The number of pending transactions was down by 24% since this time last year.
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Home price growth projected to slow further
Home prices rose 15.8% annually in July, down from the 18.1% growth seen in June, according to the latest S&P CoreLogic Case-Shiller U.S. National Home Price Index. The 2.3% difference between those two rates of annual gain is the largest deceleration in the history of the index.
"Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate," Craig J. Lazzara, managing director at S&P Dow Jones Indices, said.
Housing market experts and economists who participated in Zillow's August Home Price Expectations Survey said home price deceleration will continue into 2023.
The majority of respondents (77%) said they expected prices to drop the most in markets that experienced some of the largest growth throughout the pandemic, including Boise, Idaho, Austin, Texas and Raleigh, N.C. Inexpensive Midwest markets — such as Columbus, Ohio, Indianapolis, Ind. and Minneapolis, Minn. — are the least likely to see home prices decline over the next 12 months, the survey said.
"...This shift to a more balanced market is still in its early stages," the Zillow survey said. "Home shoppers priced out of the market face further hurdles though, as high and rising rents could cut further into their ability to save up for a down payment."
If you want to take advantage of rising home prices, you could consider taking out a cash-out refinance to help you pay down debt or fund home improvement projects. Visit Credible to find your personalized interest rate without affecting your credit score.
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