Continued monetary policy and inflationary concerns have begun to weight more and more on the mortgage rate and housing finance markets, as Freddie Mac reported the 30-year fixed-rate mortgage (FRM) averaged 5.89%, with an average 0.7 point as of September 8, 2022, up 23-basis points from last week when it averaged 5.66%. A year ago at this time, the 30-year FRM averaged nearly three full percentage points lower at 2.88%. This week’s reading of 5.89% marks the highest reporting of FRMs from Freddie Mac since late 2008.
“Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation,” said Sam Khater, Freddie Mac’s Chief Economist. “Not only are mortgage rates rising, but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate. Our research indicates that borrowers could save an average of $1,500 over the life of a loan by getting one additional rate quote and an average of about $3,000 if they get five quotes.”
Freddie Mac also reported that the 15-year FRM 5.16% this week, with an average 0.8 point, up from last week when it averaged 4.98%. A year ago at this time, the 15-year FRM averaged just 2.19%. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.64% with an average 0.4 point, up from last week when it averaged 4.51%. A year ago at this time, the five-year ARM averaged 2.42%.
“Mortgage rate volatility has been high in the last couple months as the market shifts with each new piece of economic intel,” added Hannah Jones, Economic Data Analyst for Realtor.com. “This week, investors awaited the highly-anticipated release of the Fed’s Beige Book, for a regional pulse on the U.S. economy and indicators of what may happen with interest rates at the FOMC meeting in a couple of weeks. Wednesday’s release indicated sustained price increases in all 12 Fed districts, though a moderating rate of increase in nine of these districts. This could be an early sign of the eventual ease in inflation, which would precede slowed interest rate hikes.”
According to Redfin, the Labor Day holiday brought with it a slight downturn in the housing market, with the rise in rates as a catalyst, with home-touring activity taking a nosedive, and the share of sellers dropping their price remaining near a record high.
Redfin Chief Economist Daryl Fairweather noted, "Thanks largely to mortgage rates near or even above 6%, potential homebuyers and sellers are focusing on the back-to-school season and enjoying the last days of summer rather than getting into an uncertain market. It may feel like you are playing roulette when it comes to timing when to lock your mortgage rate, but just remember you can refinance when rates eventually do turn down.”
As a result of decreasing demand, fewer homes sold above list price than any time since February 2021, as Redfin reported that the average sale-to-list price ratio fell to its lowest level since March 2021. The typical home that sold during the four weeks ending September 4 went for 0.3% below its final list price, following a year-and-a half of the average home selling above list price.
“Though mortgage rates are still more than 250 basis points higher than a year ago, homebuyers are finally seeing some relief from record-high listing prices, which fell in August as growth continued slowing year-over-year,” said Jones. “As the summer wraps up and kids head back into the classroom, typical seasonal trends of cooling demand coupled with this year’s rebalancing housing market will mean more homes are up for grabs for buyers who are still looking this fall. Despite a slightly more favorable homebuying environment, still-high rates mean a typical monthly mortgage payment would be roughly $2,100 in August, $800 more than this time last year. However, there is hope on the horizon as increased inventory and slowing time on market means buyers may benefit from more price reductions and more homes in their budget.”
Mortgage apps also took a hit this week, declining 0.8% week-over-week as the Mortgage Bankers Association (MBA) reported that overall mortgage application activity fell for the fourth consecutive week.