The chills continue as mortgage rates keep rising
Expect a “more dramatic” seasonal slowdown in home sales as average rates near 8% scare off buyers.
- The weekly average mortgage rate hit 7.79% this week, marking the seventh straight week of increases.
- Mortgage rates have nearly doubled since the Fed began hiking the federal funds rate in March 2022, leading to a 50% increase in typical monthly payments.
- Economic factors, including the upcoming jobs report on Friday, could influence where rates go next.
Mortgage interest rates appear to be all tricks, no treats as October winds down. While not yet cresting the 8% mark, rates continued to rise this week, all but ensuring a slow plod through the remaining fall and winter months.
Freddie Mac's weekly survey put the 30-year mortgage rate at 7.79% this week, up from last week's average of 7.63%. The 15-year rate also jumped to 7.03%, surpassing 7% for the first time since 2000.
Rising rates continue to push buyers out of the market. From an affordability standpoint, the typical monthly payment on a home is about 50% higher than it was in March 2022, when the Fed began hiking rates.
At that time, the typical monthly payment was about $2,000, and buyers needed an income of around $89,000 to qualify for a traditional loan; now, monthly payments have ballooned to $3,000, and the required income exceeds $130,000, said Bright MLS Chief Economist Lisa Sturtevant.
Even for buyers who can afford the higher payments, the idea of an 8% mortgage rate may be "a bridge too far," Sturtevant said, keeping home shoppers sidelined.
So where does this leave the market? While the "must buy" and "must sell" factions of consumers will forge ahead, others will continue to wait it out. As a result, this year's seasonal slowdown will likely be "more dramatic" than usual, said Sturtevant, who added that buyers and sellers may need to wait a long time for any significant decline in rates (or home prices).
Some good news (sort of)
Daily fluctuations indicate that "up" isn't the only direction rates can go. Earlier this week, average daily mortgage rates declined for three consecutive days, according to Mortgage News Daily. That progress has since been canceled out with the daily average hitting 7.98% as of Oct. 25, but it's a reminder that rates won't keep climbing forever.
Factors including the upcoming jobs report and the Fed meeting next week will likely influence where mortgage rates go next. Most economists do not expect the Fed to hike rates in November, but stronger-than-expected jobs data could influence the Fed's decision. Federal Reserve Chair Jerome Powell has previously suggested that the board will hike rates one more time in 2023.
Coinciding with the bump in rates, mortgage applications fell again slightly, decreasing 1% from a week prior, the Mortgage Bankers Association reported. MBA Deputy Chief Economist Joel Kan noted that the weekly pace of applications hasn't been this slow since 1995.