A fall reprieve unlikely as mortgage rates inch up
With inflation proving tough to tame, 7% mortgages may be the norm for a while.
Key points:
- The 30-year fixed-rate mortgage averaged 7.18% this week, up from 7.12% the previous week.
- The Fed isn't expected to raise the benchmark rate next week, but economists predict mortgage rates will stay in the 6.5%-7.5% range for the rest of the year.
- Modest price reductions could ease affordability woes for some buyers this fall.
Mortgage interest rates inched upward this week, dampening hopes for some relief heading into the fall season.
The 30-year fixed-rate mortgage averaged 7.18% this week, according to the latest Freddie Mac survey. That's up from 7.12% a week ago, and rates have now been above 7% for more than a month.
Rising inflation, coupled with an economy that remains strong despite a series of rate hikes, is keeping mortgage rates elevated, said Sam Khater, Freddie Mac's chief economist.
While most analysts are not expecting another interest rate hike at next week's Federal Reserve meeting, a decline in mortgage rates in the second half of 2023, which many economists had predicted earlier in the year, hasn't materialized.
Rates are now expected to hover in the 6.5%-to-7.5% range for the remainder of the year, making affordability a challenge for homebuyers, said Odeta Kushi, chief economist at First American Mortgage.
"Some of the drivers of the widening of the mortgage rate spread will likely remain sticky, which may prevent mortgage rates from meaningfully declining," Kushi said.
The combination of high interest rates and rising home prices is a double-whammy for homebuyers. The National Association of Realtors' Housing Affordability Index was at 87.8 last week, the lowest level since July 1986.
"The Fed needs to stop rate hikes as the impact on housing consumers is clear," said Jessica Lautz, deputy chief economist at NAR.
While big declines in mortgage rates seem unlikely, price reductions tend to be more common heading into the fall, "offering a ray of hope" to homebuyers, said Jiayi Xu, an economist at Realtor.com.
Those seasonal price reductions are expected to be few and far between, however.
"Even as housing demand cools this fall, inventory will still be low and prospective home buyers who can make the numbers work at interest rates around 7% will still have to act quickly," said Lisa Sturtevant, chief economist at Bright MLS.
For many homebuyers, the time to act quickly hasn't yet arrived. Mortgage applications dropped another 0.8% last week, according to the Mortgage Bankers Association. They are now down 27% compared to a year ago and are at the lowest level since 1996, according to Joel Kan, MBA's deputy chief economist.