Fixed-Rate Mortgages Reach 20-Year High

After a week of slight declines in fixed-rate mortgages (FRMs), Freddie Mac reported the 30-year FRM averaged 6.92%, up 26-basis points for the week ending October 13, 2022, up over last week’s reading of 6.66%. A year ago at this time, the 30-year FRM averaged more than half that total, coming in at 3.05%.

“Rates resumed their record-setting climb this week, with the 30-year fixed-rate mortgage reaching its highest level since April of 2002,” said Sam Khater, Freddie Mac’s Chief Economist. “We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously. The next several months will undoubtedly be important for the economy and the housing market.”

Also this week, the 15-year FRM averaged 6.09% with an average 1.1 point, up from last week when it averaged 5.90%. A year ago at this time, the 15-year FRM averaged 2.30%. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 5.81% with an average 0.2 point, up from last week when it averaged 5.36%. A year ago at this time, the five-year ARM averaged 2.55%.

“Housing markets continue to feel the direct impact of higher mortgage rates,” added George Ratiu, Senior Economist for Realtor.com. “With incomes lagging behind inflation, homebuyers’ ability to finance a purchase has been slashed by mortgage rates which surged from 3.1% at the start of 2022 to almost 7%. For a family earning the median household income of $71,000 and using a 20% down payment, a typical home purchase budget stretched to $448.700 in January 2022. This week, the same family could only afford a $339,200 home.”

The continued ascension in mortgage rates has driven down total application volume once again, as the Mortgage Bankers Association (MBA) reports overall mortgage application volume decreased 2.0% week-over-week, while the rate of refinance volume was 86% lower than the same week just one year ago.

“Application volumes for both refinancing and home purchases declined and continue to fall further behind last year’s record levels,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand. However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.”

As Fratantoni mentions, the Bureau of Labor Statistics (BLS) has reported that the U.S. economy added 263,000 jobs in September, as the unemployment rate edged back down to a more than 50-year low of 3.5%.

Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) slid 1.2 points in September to 60.8, its seventh consecutive monthly decline, amid growing affordability constraints. Surveyed consumers continued to express bleak sentiments on the market as those polled expect mortgage rates to continue to move higher over the next 12 months, and, for the first time since May 2020, more respondents than not expect home prices to decline. In September, only 19% of consumers indicated that it’s a good time to buy a home–down from 22% the prior month–while 59% indicated that it’s a good time to sell.

“Homebuyers are responding to worsening affordability conditions by moving away from expensive cities, seeking lower cost markets around the country,” said Ratiu. “Realtor.com’s latest report highlights that the most in-demand housing markets are clustered in the Midwest and more affordable Northeast regions, where the average list price for the 20 hottest markets is $364,000, a 15% discount from the national median.”