Real estate in for a fright as mortgage rates return to 7%
The latest numbers suggest that, for the third consecutive fall season, rates will crest that dreaded threshold.
Rising rates are becoming a fall tradition, but unlike pumpkin spice, they are no treat for an industry hoping for a late-season rally.
Mortgage News Daily reports that the rate on an average 30-year loan reached 7% on Monday, Oct. 28, marking the third straight year that rates have climbed to that level in the fall — and a big jump from just a month ago, when rates hit a low of 6.08%.
In a spooky bit of deja vu, it was this exact week in 2022 when rates topped 7% for the first time in decades; since then, rates have remained above 6%.
The Freddie Mac weekly survey, which uses a different set of metrics to measure mortgage rates, had rates pegged at 6.54% last week, the third consecutive increase.
This upward trend is not what many in the real estate industry expected — or at least not what they hoped for — when the Federal Reserve announced a 50-basis point rate cut on Sept. 18. But as some economists had noted, any impact from the Fed's rate cut may have already been baked into the late-summer declines, said Lisa Sturtevant, chief economist at Bright MLS.
A hit to affordability: With home prices also still rising, the median monthly mortgage payment was $2,587 for the four weeks ending on Oct. 20, according to Redfin. That's up $100 from the month before, leading to a slowdown in mortgage loan applications.
Also slowing: existing home sales, which fell short in September, diminishing hopes of a late-season bump in sales.
Economic wild cards: Signs of life may be fading, but Sturtevant believes the market will start to turn around before the end of the year, leading to more sales activity in the fourth quarter.
Broader economic factors may play a role: The labor market and core inflation are expected to cool, eventually bringing mortgage rates down. The employment reports coming out this week will shed some light on the accuracy of those predictions, but they may be harder to decipher than usual, reports The Wall Street Journal.
According to the Journal, the uncertainty of the election, plus the recent hurricanes and the ongoing Boeing strike, could create a "mess" of the data. Given that confluence of events, economists are expecting the economy to only add around 110,000 new jobs in October, down significantly from the 254,000 added in September.