30-year mortgage rate inches upward as housing market remains sluggish
The rate now sits at 6.48%, up from 6.42% the week before. A year ago, the average rate was 3.22%.
- Even though rates are down from their early-November peak, mortgage applications hit the lowest level in more than 25 years.
- The spring homebuying season should provide more clarity on where the market is going in 2023.
Mortgage interest rates inched higher at a time when loan applications were the lowest they've been in more than 25 years, marking it a very chilly start for the 2023 real estate market.
The 30-year fixed-rate mortgage average was 6.48% as of Jan. 5, up from 6.42% the week before according to the latest Freddie Mac survey. The elevated rates continue to weaken the housing market, said Sam Khater, Freddie Mac's chief economist.
"While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023," Khater said. "Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tailwind of Millennial renters will provide support to the purchase market."
The lending market is reacting to this unusual climate — one in which recession worries persist, but economic numbers remain strong — said Georg Ratiu, Realtor.com's manager of economic research.
"With a Federal Reserve committed to bringing inflation down, investors expect business investments and consumer spending to pull back. However, with most Americans still employed and seeing modest pay gains, the pullback in spending has yet to meaningfully materialize," Ratiu said.
Even with the recent downward trend in mortgage interest rates in recent weeks, it's not attracting buyers. Mortgage applications dropped 13.2% at the end of December compared to two weeks earlier, according to the latest report from the Mortgage Bankers Association.
The latest drop puts mortgage applications at their lowest level since 1996, said Joel Kan, MBA's deputy chief economist.
"Purchase applications have been impacted by slowing home sales in both the new and existing segments of the market," Kan said. "Even as home-price growth slows in many parts of the country, elevated mortgage rates continue to put a strain on affordability and are keeping prospective homebuyers out of the market."
Nadia Evangelou, NAR senior economist and director of real estate research, agreed that affordability is a key issue. Although she predicts that rates will fall below 6% this year, a home purchase is not currently feasible for most would-be buyers. "With the qualifying income near the $100,000 threshold, 32% of all households and 15% of all renters can currently afford to buy the median-priced home," she said.
Ratiu noted that, for buyers of a median-priced home, today's mortgage rate translates to a monthly payment that is 64% higher than it was at this time last year.
"We may have to wait until the start of the spring shopping season for more clarity on the direction of housing markets this year, especially as both buyers and sellers are pulling back from the marketplace," Ratiu said.
The 15-year fixed-rate mortgage averaged 5.73% on Jan. 5, up from 5.68% the week before. A year ago, the 15-year rate was 2.43%.