Mortgage rates edge even closer to 8%, levels not seen in more than two decades
Mortgage rates moved closer to 8% this week, sustaining levels not seen in 23 years and crushing buyer hopes for a home of their own.
The average rate on the 30-year fixed mortgage increased to 7.63% from 7.57% the previous week, Freddie Mac reported Thursday. The rate has topped 7% for 10 straight weeks, a stretch not seen since the last months of 2000.
Rates continue to hold homebuyers and sellers in a vice grip, keeping the former for affording a home and the latter stuck in a property they want to sell. Rates are likely to remain elevated as the markets continue to bet the Federal Reserve will keep its benchmark rate higher for longer.
"The Federal Reserve is clearly overdoing the rate hike... on the residential side, the affordability, the monthly payment to buy a medium-priced home, by a middle-income person has essentially doubled from pre-COVID to today," Lawrence Yun, chief economist of the National Association of Realtors, recently told Yahoo Finance Live (video above). "This is taking away the American dream, the dream of ownership opportunity."
Read more: How to get a mortgage in 2023
Many buyers have already backed out of the market.
The number of purchase applications dropped 6% last week from the previous one, the Mortgage Bankers Association found, with volume down 21% from just a year ago.
More buyers turned to adjustable-rate mortgages last week, too, because the average rate on the five-year ARM was a much more attractive 6.52%, according to MBA.
On Thursday, the NAR reported that existing home sales fell by 2% in September — yet another indicator of how much mortgage rates are smothering housing activity — as buyers also grapple with low inventory, which is pushing up prices.
Read more: How to buy a house in 2023
High mortgage rates are also to blame for the low inventory. Almost 85% of homeowners with a mortgage have a rate below 5%, a Redfin report this summer found. Many of them refuse to sell and buy a new home if they must finance with a rate near 8%.
Read more: Mortgage rates at over 20-year high: Is 2023 a good time to buy a house?
As a result, inventory in September was at the lowest count for the month since 1999. The number of single-family homes on the market were the fewest since 1982.
"Americans aren’t moving," Yun said on a press call Thursday after the release of existing home sales. "The lock-in effect is stronger."
Janna Herron is the personal finance and real estate editor for Yahoo Finance. Follow her on Twitter @JannaHerron.
