Mortgage rates linger above 7% for another week

US mortgage rates remained flat this week, hovering over 7%, where they’ve been for six consecutive weeks as inflation pressures persist.

The 30-year fixed-rate mortgage averaged 7.19% in the week ending September 21, a tick up from 7.18% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.29%.

“Mortgage rates continue to linger above 7% as the Federal Reserve paused their interest rate hikes,” Sam Khater, Freddie Mac’s chief economist, said. “Given these high rates, housing demand is cooling off and now homebuilders are feeling the effect,” he said. “Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply,” Khater added.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign. The added cost of financing a mortgage and sharply rising home prices have sent home affordability to its lowest level in several decades.

The inventory of existing homes has also dramatically declined as homeowners who previously locked in lower rates are reluctant to sell and become homebuyers with current rates so high. The combination of low inventory and high costs has sent overall home sales 20% lower than last year, year to date.

Focus on the Fed

Last week’s average mortgage rate for a 30-year, fixed-rate loan was essentially unchanged because analysts and investors were focusing on Wednesday’s Federal Reserve meeting in which central bank officials decided to hold the short-term policy rate steady at a range of 5.25 to 5.5%.

Looking ahead, the updated outlook from the Federal Reserve suggests a monetary policy that is “tighter for longer,” according to Jiayi Xu, an economist at Realtor.com.

“With the year-end projection for 2023 remaining at 5.6%, we are drawing closer to another potential rate hike as the year approaches its end,” Xu said.

That will keep mortgage rates elevated in the near term.

While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.

Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

Housing markets remain stuck

With mortgage rates holding steady over 7%, many homeowners are still hesitant to put their homes up for sale.

Over 90% of current mortgage holders have a rate of 6% or less, according to Black Knight, a real estate data company. Many have rates of 2%, 3% or 4% and are reluctant to sell and become a buyer with a mortgage rate at 7% or higher.

Although the current housing market presents significant challenges, the fall typically ushers in more favorable buying conditions compared to the rest of the year, said Xu.

“For those looking to purchase a home in this tough year, the first week of October will emerge as the best time to make a move,” said Xu. “Historical data suggests that during this particular week, home prices tend to dip below their peak levels, competition subsides, and the housing inventory expands compared to the busy summer months.”

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