Amid positive economic news, mortgage rates have risen for the fourth consecutive week, as Freddie Mac reports the 30-year fixed-rate mortgage (FRM) has hit 6.65%, up from 6.50% last week, according to its latest Primary Mortgage Market Survey (PMMS). A year ago at this time, the 30-year FRM averaged 3.76%.
“As we started the year, the 30-year fixed-rate mortgage decreased with expectations of lower economic growth, inflation, and a loosening of monetary policy. However, given sustained economic growth and continued inflation, mortgage rates boomeranged and are inching up toward 7%,” said Sam Khater, Freddie Mac’s Chief Economist. “Lower mortgage rates back in January brought buyers back into the market. Now that rates are moving up, affordability is hindered and making it difficult for potential buyers to act, particularly for repeat buyers with existing mortgages at less than half of current rates.”
Also this week, Freddie Mac reported the 15-year FRM averaging 5.89%, up from last week when it averaged 5.76%. A year ago at this time, the 15-year FRM averaged 3.01%.
“Investors are expecting inflation to remain elevated for longer, requiring the Federal Reserve to keep increasing its policy rate. The Fed signaled that it sees its monetary tightening having an effect on price growth, but with a strong employment market, wages keep consumers spending,” Realtor.com Senior Economist George Ratiu added. “At the same time, consumers have taken on a record amount of debt, including mortgage, personal, auto, and student loans. In addition, the personal savings rate has dropped significantly from the pandemic high, as high prices have been squeezing household budgets. With rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead.”
As rates rise, more prospective buyers have retreated to the sidelines, as the Mortgage Bankers Association (MBA) reported mortgage application volume continuing to drop, dipping 5.7% from one week earlier, according to its latest Weekly Mortgage Applications Survey for the week ending February 24, 2023. Year-over-year, overall mortgage app volume fell 44%.
"The recent jump in mortgage rates has led to a retreat in purchase applications, with activity down for three straight weeks,” said MBA President and CEO Robert D. Broeksmit, CMB. “After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective homebuyers pause about entering the housing market."
The MBA also reported that the national median mortgage payment applied for by purchase applicants increased 2.3% in December 2022, moving approximately $40 upward from $1,920 to $1,964.
“While mortgage rates declined in January, giving many buyers hope that affordability may improve, they are on the rise again, and could even crest 7% again in the next couple of months,” added Ratiu. “For real estate markets, the rise in rates means higher mortgage payments, deepening the affordability challenge just as we move into the crucial spring homebuying season. For the buyers of a median-priced home, today’s rate is translating into a $2,132 monthly payment, 49% higher than last year.”