Economic Strength Keeping Mortgage Rates Above 7% Mark

Mortgage rates have topped 7% for the fifth consecutive week, as Freddie Mac reports the 30-year fixed-rate mortgage (FRM) averaging 7.18%, up six basis points from last week’s average of 7.12%. A year ago at this time, the 30-year FRM averaged 6.02%.

“Mortgage rates inched back up this week and remain anchored north of 7%,” said Sam Khater, Freddie Mac’s Chief Economist. “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated. However, potential homebuyers can still benefit during these times of high mortgage rates by shopping around for the best rate quote. Freddie Mac research suggests homebuyers can potentially save $600-$1,200 annually by applying for mortgages from multiple lenders.”

Also this week, Freddie Mac reported the 15-year FRM averaging 6.51%, down slightly from last week when it averaged 6.52%. A year ago at this time, the 15-year FRM averaged 5.21%.

As mortgage rates accelerated upward, the Mortgage Bankers Association (MBA) reported that overall application volume fell to points last seen nearly 30 years ago, falling 0.8% week-over-week.

“High mortgage rates continue to subdue borrower demand, with mortgage applications in the first full week of September falling to lows last seen in 1996,” said MBA President and CEO Bob Broeksmit. “Persistent affordability and housing inventory pressures are keeping prospective buyers on the sidelines, and most homeowners have little incentive to refinance. MBA expects some of the recent volatility in rates to subside enough that the 30-year fixed rate will fall closer to 6 percent by the end of the year.”

And as Jiayi Xu, Economist at Realtor.com, points out, economic headwinds will continue to sway the mortgage rate landscape.

“Looking ahead, we expect that inflation will continue to move into the right direction as shelter costs, the most important component of the core CPI, have moved down for five consecutive months on a year-over-year basis and Realtor.com’s median asking-rents indicate rental prices have been gradually declining,” noted Xu. “However, while the CPI shelter index has trended favorably, pulling down core inflation, the index typically tracks prices with a lag, so the recent price rebound within the for-sale housing markets may add some uncertainties. Overall, we expect the Fed will maintain its ‘wait-and-see’ approach in its next FOMC meeting and closely monitor future data.”

With the forces of affordability and low inventory continuing their pull on the nation’s housing market, many are staying in place, prioritizing home improvements over a radical change in address amid a continued high rate market. A recent LendingTree poll of nearly 2,200 U.S. homeowners found that, over the course of the past 12 months, 68% of those polled started or completed home improvement projects, while 63% plan to begin one in the next year.

“As many existing homeowners felt locked-in by today’s elevated mortgage rates and stayed put, home shoppers are seeing fewer homes actively for sale,” added Xu. “In fact, Realtor.com’s recent Site Visitor’s Survey highlights that the struggle to find a suitable home to purchase has become a more pressing concern for today's homebuyers compared to the past. Specifically, first-time home buyers are grappling with the daunting task of locating a residence that fits within their budgetary constraints, while repeat home buyers are facing challenges in finding properties that align with their unique requirements. However, the best time to buy for the rest of the year, with more price reductions and more fresh listings hitting the market, is approaching, offering a ray of hope to both types of homebuyers in this challenging environment.”