Are mortgage rates headed to 8%?
The average weekly mortgage rate leapt up again this week, and 8% "does not seem unlikely."
Key points:
- The 30-year fixed-rate mortgage averaged 7.49% this week, up from 7.31% just a week ago.
- Expectations of another Fed rate hike and turmoil in Congress are contributing to the volatility.
- The Friday jobs report is expected to influence where rates go next.
Mortgage rates continue to defy expectations, jumping significantly for a second straight week and pushing more potential buyers to the sidelines.
The 30-year fixed-rate mortgage rate averaged 7.49% this week, according to the latest Freddie Mac survey. That's up from 7.31% a week ago and at the highest level in a generation.
The 15-year fixed-rate mortgage also rose, hitting 6.78%.
There are several reasons why mortgage rates are still climbing, said Chen Zhao, who leads Redfin's economic research team. Key factors include the expectation of another rate hike from the Fed before the end of the year, a strong job market, and investor predictions of higher rates.
"Turmoil in Congress isn't helping, either," Zhao said, adding that it is causing volatility in the stock and bond markets.
After spiking to multi-decade highs earlier this week, daily rates have stabilized over the past two days, sitting at 7.69% on Oct. 5 according to Mortgage News Daily.
What's next?
Where rates go next may depend on the federal government's September jobs report, which is scheduled to be released on Oct. 6.
Economists are expecting a net gain of 170,000 jobs for September. If the number is lower, that could point to a cooling economy, which in turn could lead to lower rates. A stronger jobs report, however, might be a signal that further interest rate hikes will be needed.
This late-year rise has defied many economists' expectations as inflation has proven tough to tame in 2023.
"At the beginning of the year, it was widely expected that mortgage rates would fall to around 6% by the end of 2023. However, now the question is whether rates will hit 8% this year," said Lisa Sturtevant, chief economist at Bright MLS. She noted that based on the recent behavior of 10-year treasury rates, 8% mortgage rates "does not seem unlikely."
As rates have soared, mortgage applications have continued to slow. The latest data from the Mortgage Bankers Association found that applications dropped 6% from the previous week and were down 22% from a year ago.