Mortgage rates soar to 23-year high
Even as interest rates climb, home prices aren't budging, a combo which may "put the brakes on the housing market."
Key points:
- The 30-year fixed-rate mortgage averaged 7.31% this week, up significantly from 7.19%.
- In the more-bad-news department: Economic indicators point to interest rates remaining higher for longer.
- Seasonal factors could lower home prices in the coming weeks, which may convince buyers worried about even higher rates to jump in.
Mortgage interest rates surged upward again this week, reaching levels not seen since 2000.
The average 30-year fixed-rate mortgage landed at 7.31% this week, according to the latest Freddie Mac survey. That's a big jump from last week's 7.19%. The 15-year fixed-rate mortgage also rose, hitting 6.72%.
The daily rate has been trending even higher, according to Mortgage News Daily. Its survey put the 30-year rate at 7.62% on Sept. 28.
When rates were at similar levels two decades ago, home prices declined — but today, they are continuing to rise, noted Sam Khater, Freddie Mac's chief economist.
"These headwinds are causing both buyers and sellers to hold out for better circumstances," Khater said.
Even more prospective buyers are sitting on the sidelines. Pending sales were down 7.1% in August, offering a preview of where home sales may be heading this fall.
Mortgage rates continue to rise because the Federal Reserve's updated economic projections indicate a longer timeline for short-term interest rates, said Lisa Sturtevant, chief economist for Bright MLS. That means further slowing is coming in the real estate market.
"The report on higher mortgage rates joins other indicators to suggest that the seemingly-unstoppable housing market may be about to finally and truly stall out," Sturtevant said.
For buyers and agents looking for a ray of hope in this current climate, home prices tend to fall at this point in the year — but big declines are unlikely. "Even if the financial and psychological burden of 7%+ mortgage rates puts the brakes on the housing market in terms of sales, it does not necessarily mean major price drops," said Sturtevant.
Still, some buyers might jump in, fearing that rates will go even higher if they wait, said Danielle Hale, chief economist at Realtor.com.
But the for-sale market faces other headwinds. Along with elevated interest rates and high home prices, rent has started to ease. Hale noted that in all but three major U.S. markets studied, buying a starter home is more expensive than renting.
This combination of factors appears to be influencing mortgage applications. After rising the previous week, the latest survey by the Mortgage Bankers Association found mortgage applications were down 1.3%.