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Freddie Mac: Mortgage Rates Dip Below 7%
By Leslie Cook MONEY RESEARCH COLLECTIVE
The rate on a 30-year fixed-rate mortgage is averaging 6.95% according to Freddie Mac’s weekly lender survey.
Mortgage rates retreated back below 7% this week.
The rate on a 30-year fixed-rate mortgage is averaging 6.95% according to Freddie Mac’s weekly lender survey, moving 0.13 percentage points lower compared to last week. Despite today’s decline, rates remain at a 20-year high.
“Mortgage rates continue to hover around 7%, as the dynamics of a once-hot housing market have faded considerably,” said Sam Khater, Freddie Mac’s chief economist in a statement. “Unsure buyers navigating an unpredictable landscape keeps demand declining while other potential buyers remain sidelined from an affordability standpoint.”
At the start of the year, rates were near 3%. The fast pace of increase caught the market by surprise, leaving would-be homebuyers little time to adjust or plan for higher rates and mortgage payments.
The typical monthly payment on a $300,000 mortgage is now about $2,000. A year ago the typical payment averaged $1,265 — a difference of more than $700, noted Lawrence Yun, chief economist at the National Association of Realtors, in a statement.
As a result, the extremely competitive housing market has slowed significantly.
Pending homes sales, a measure of signed sales contracts that have not yet closed, decreased by a little more than 10% in September compared to August, according to the NAR. Year-over-year, pending sales are down by 31%.
“The new normal for mortgage rates could be around 7% for a while,” said Yun. “Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”
The Fed doubles-down on rate hikes
The Federal Reserve announced another big rate hike Wednesday in its bid to fight inflation. The increase is likely to send mortgage rates higher over the next few days.
Looking ahead, Khater noted, “Yesterday’s interest rate hike by the Federal Reserve will certainly inject additional lead into the heels of the housing market.”
The Fed increased the federal funds rate by another 0.75 percentage points — the fourth consecutive hike of that size and the sixth hike this year. The increase brings the up to 4%, the highest it has been since 2008.
The Fed does not set mortgage rates. However, increases to the federal funds rate, or the interest rate banks charge each other for short-term overnight loans, generally lead to higher rates on loans, credit cards and mortgages. Higher borrowing costs would then lead to a slowdown in demand for products and services, eventually leading to lower prices.
In announcing the increase, the central bank reiterated its belief that “ongoing increases in the target range will be appropriate” in order to reduce inflation to the Fed’s 2% target, signaling that rate hikes are likely to extend into next year.
There was a ray of hope, however, that the Fed may ease up on the magnitude of increase. A policy statement indicated that the bank will take the effects of its rate increases on the economy before deciding on the size of future increases.
The comment led market observers to believe that a 0.50 percentage point rate hike at the Fed’s next meeting in December is likely. However, at the press conference following the announcement, Powell said “we have a ways to go” before the Fed would stop hiking rates. He also indicated that the federal funds rate would probably need to rise above the 4.5% peak the central bank had previously estimated.
The Fed began implementing a series of rate increases in March when inflation rose above 8% for the first time in 40 years. Despite the aggressive actions taken by the central bank, consumer prices have remained high.
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Leslie Cook is the Lead Mortgage Reporter covering real estate and mortgages for Money. She started out over 30 years ago as a business reporter with Caribbean Business newspaper in San Juan, Puerto Rico, covering computers, and human resources. Her work has also appeared in Reuters and she graduated Cum Laude from Bryn Mawr College in Pennsylvania with a bacheloru2019s degree in history.