‘It's possible that mortgage rates have topped off’: Latest tumble a sign of hope amid jumbled-up housing market

·4 min read
‘It's possible that mortgage rates have topped off’: Latest tumble a sign of hope amid jumbled-up housing market
‘It's possible that mortgage rates have topped off’: Latest tumble a sign of hope amid jumbled-up housing market

After climbing for two weeks, U.S. mortgage rates have fallen as borrowing costs bounce around amid mixed signals from the economy.

While home sales are plummeting and fears of a recession are growing by the day, the labor market is expanding and unemployment is still low.

As a result, borrowing costs have been volatile — and the fluctuations may continue until the economy finds more solid footing.

Even with this week’s dip, the 30-year mortgage rate is more than two full percentage points higher than it was at the start of the year.

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30-year fixed-rate mortgages

The rate on a 30-year fixed mortgage is averaging 5.30% this week, down from 5.54% last week, housing finance giant Freddie Mac reported Thursday. A year ago at this time, the typical rate was 2.80%.

The cumulative impact of higher rates, along with elevated home prices and waning consumer confidence, is dampening the homebuying market, says Sam Khater, Freddie Mac’s chief economist.

“As the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes,” Khater says.

Mortgage applications — an indicator for future home sales — fell 1.8% at the end of last week, compared with a week earlier, according to the latest survey from the Mortgage Bankers Association.

15-year fixed-rate mortgages

The 15-year fixed-rate mortgage is averaging 4.58% this week, down from 4.75% last week, Freddie Mac says.

Last year at this time, the 15-year rate averaged 2.10%.

Much of the volatility in rates is stemming from the government’s response to rising consumer costs. This week, the Federal Reserve hiked its own interest rate for the fourth time this year as it continues its war on inflation.

Such moves impact mortgage rates in indirect ways — and some analysts say the Fed increase is already baked into the housing finance market.

“Activity from the Fed is already priced into recent mortgage rate adjustments, so it's possible that mortgage rates have topped off," Lawrence Yun, chief economist for the National Association of Realtors, said this week during a forecast summit.

5-year adjustable-rate mortgages

The rate on the five-year adjustable mortgage — one that moves up or down based on the prime rate — is averaging 4.29%, down from an average of 4.31% last week.

A year ago, the 5-year adjustable-rate mortgage, or ARM, was averaging 2.45%.

Borrowers who have these types of loans — or those who may be planning to sign up for one soon — could expect to see an uptick in borrowing costs.

That’s because when the Fed rate goes up, the prime rate does as well.

This all means home prices are going to fall, right?

One might assume that with demand pulling back and inventory moving up, prices have nowhere to go but down.

Yet that’s not what’s happening — not just yet, says housing consultant Jonathan Miller.

“That can take a year or two, because the sellers that aren’t going to get their price don't sell,” Miller said this week on the Business of Home podcast.

“The seller, unless they have to sell, doesn’t sell — so the market really slows down.”

Yelena Maleyev, a senior economic research associate with KPMG, says housing supply is likely to remain tight and prices elevated.

“Unfortunately, as mortgage rates rise, more sellers will be reluctant to put their homes on sale, especially if they will need to buy a new house to move into,” she writes.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.