Mortgage rates have just fallen and house prices could ‘climb’ – but buyers hoping for a free fall ‘will be disappointed’

Mortgage rates have just fallen and house prices could ‘climb’ – but buyers hoping for a free fall ‘will be disappointed’

After climbing above 7% for the first time in 20 years, US mortgage rates have come back down this week even as the housing market continues to suffer from high borrowing costs.

Rates also fell despite the Federal Reserve announcing another three-quarter point hike in its key federal funds rate, a sign that inflation is still untamed.

“It looks like (mortgage) rates have already priced in some of the effects of the Fed’s interest rate hike,” says Nadia Evangelousenior economist for the National Association of Realtors.

Still, depending on how fast — or how slow — consumer prices and the still frothy labor market begin to moderate, home loan rates could soon begin to rise again.

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30 Year Fixed Rate Mortgages

The interest rate on a 30-year fixed mortgage – the most popular home loan in the United States – averaged 6.95% this week, down from 7.08% a week earlier, according to the finance giant. housing Freddie Mac reported Thursday.

Last year at this time, the 30-year rate averaged 3.09%.

At today’s rates (and at today’s prices), the monthly mortgage payment for a median-priced home is $965 higher than it was a year ago, said George Ratiusenior economist for Realtor.com.

“Dramatically rising financing costs have effectively squeezed budgets for most buyers,” says Ratiu.

15-year fixed rate mortgages

The rate on a 15-year fixed mortgage averaging 6.29% this week, down from 6.36% last week and 2.35% a year ago, Freddie Mac says.

Sales continue to decline and prices in many markets follow suit.

Average home prices fall in more than a third of the 100 largest U.S. real estate markets to research from Florida Atlantic University (FAU) and Florida International University.

The markets with the biggest declines are mostly in the places that had seen the strongest appreciation: San Jose, Calif., Austin, Texas, San Francisco, Boise, Id. and Salt Lake City.

“Housing markets across the country are definitely slowing and appear to be reaching the highs of their current housing cycles,” says Ken H. Johnson, an economist at the FAU College of Business.

5 Year Adjustable Rate Mortgage

The average rate for a five-year variable rate mortgage – or ARM – was 5.96% this week, down a bit from 5.96% last week.

Last year at this time, the five-year ARM averaged 2.54%.

ARMs start with fixed interest rates that typically last between three and 10 years. Rates are generally lower than a longer-term fixed mortgage, such as 15 or 30 years.

But after the initial term, the rate of an ARM will adjust up or down based on a benchmark like the preferential rate.

Read more: Should I wait until the housing collapses more before buying a house? 3 reasons why the end of 2022 could be the best time to launch

The impact of the Fed on mortgage rates

The Federal Reserve does not set mortgage rates, but its federal funds rate influences a range of borrowing costs, including those for home loans.

The Fed’s recent interest rate hikes have affected demand in a variety of sectors, but perhaps no more so than housing.

“The housing market was very overheated for a few years after the pandemic as demand rose and rates were low,” the Fed chairman said. Jerome Powell voiced at a press conference this week. “The housing market must regain a balance between supply and demand.”

Powell said that from a financial stability perspective, however, the market appears to be in better shape now than in the days before the global financial crisis, when lending standards were much looser than they were. are today.

“It’s a very different situation and doesn’t appear to present any financial stability issues,” he said.

Where will the fares go from here?

Mortgage rates could climb to 8% or more by the end of this year or early next year if inflation proves tenacious, said Lisa Sturtevant, chief economist at Bright MLS.

The latest consumer price data will be out next week – and that could be indicative of Fed actions going forward.

“While rates could be volatile over the next few weeks, homebuyers expecting a significant drop in mortgage rates will be disappointed,” Sturtevant said.

If inflation slows and the Fed eases its aggressive hikes, mortgage rates could stabilize around 7%, she said.

The last Mortgage Bankers Association predictions (MBA) shows average 30-year fixed rates peak in the last quarter of this year and then fall in 2023.

Mortgage applications fall for sixth straight week

The decline in mortgage activity continued last week, falling 0.5% from the previous week, according to the latest MBA survey.

Specifically, mortgage applications for home purchases fell 1% from the previous week and 41% from a year ago. Applications for refinancing existing home loans were down 0.2% and 85% from a year ago.

“In addition to the ARM loan rate, rates for all other types of loans were more than three percentage points higher than they were a year ago,” says Joel Kan, vice president and chief economist. MBA assistant.

“These high rates continue to put pressure on buying and refinancing activity and have exacerbated affordability issues affecting the broader housing market, as evidenced by deteriorating trends in housing starts and home sales.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Carol N. Valencia