(US) – In the week ending September 21, US mortgage rates remained unchanged, firmly perched above the 7% mark for the sixth consecutive week as inflationary pressures continued to weigh on the economy.
According to data released by Freddie Mac on Thursday, the 30-year fixed-rate mortgage averaged 7.19%, a slight uptick from the previous week’s 7.18%. A year ago, the same mortgage rate stood at 6.29%.
Sam Khater, Chief Economist at Freddie Mac, noted, “Mortgage rates continue to linger above 7% as the Federal Reserve paused their interest rate hikes. Given these high rates, housing demand is cooling off, and now homebuilders are feeling the effect.
Builder sentiment declined for the first time in several months, and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply.”
Mortgage rates tied to 20% down payment
The average mortgage rate is based on mortgage applications received by Freddie Mac from thousands of lenders nationwide, including only borrowers who made a 20% down payment and had excellent credit.
The surge in mortgage rates has coincided with the Federal Reserve’s efforts to combat historic levels of inflation. The increased cost of financing mortgages, coupled with soaring home prices, has pushed home affordability to its lowest point in decades.
The inventory of existing homes has significantly dwindled as homeowners with lower, locked-in rates are hesitant to sell and become buyers in a high-rate environment.
This combination of limited inventory and elevated costs has led to a 20% decline in overall home sales year-to-date compared to the previous year.
Last week’s average mortgage rate for a 30-year fixed-rate loan remained largely unchanged as market attention was focused on the Federal Reserve’s decision to maintain the short-term policy rate within a range of 5.25% to 5.5%.
Looking ahead, the Federal Reserve’s updated outlook suggests a “tighter for longer” monetary policy, according to Jiayi Xu, an economist at Realtor.com.
With a year-end projection for 2023 at 5.6%, the possibility of another rate hike as the year draws to a close looms large, which will keep mortgage rates elevated in the near term.
Although the Federal Reserve doesn’t directly determine borrower interest rates on mortgages, its actions exert significant influence.
Mortgage rates often follow the yield on 10-year US Treasuries, which are impacted by expectations of the Fed’s actions, its actual decisions, and investor responses. When Treasury yields rise, so do mortgage rates, and vice versa.
With mortgage rates steadfastly above 7%, a significant number of homeowners remain reluctant to list their homes for sale.
According to real estate data company Black Knight, over 90% of current mortgage holders have rates of 6% or less, with many enjoying rates as low as 2%, 3%, or 4%.
This reluctance to sell and become buyers with mortgage rates at or above 7% has contributed to the current challenges in the housing market.
Despite these challenges, the fall season traditionally brings more favorable buying conditions compared to other times of the year. Jiayi Xu pointed out, “For those looking to purchase a home in this tough year, the first week of October will emerge as the best time to make a move.
Historical data suggests that during this particular week, home prices tend to dip below their peak levels, competition subsides, and the housing inventory expands compared to the busy summer months.”