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Tag: mortgage rates
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Mortgage rates blow past 7% for first time in two decades
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The average long-term U.S. mortgage rate topped 7% for the first time in more than two decades this week, a result of the Federal Reserve’s aggressive rate hikes intended to tame inflation not seen in some 40 years.
Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate jumped to 7.08% from 6.94% last week. The last time the average rate was above 7% was April 2002, a time when the U.S. was still reeling from the Sept. 11 terrorist attacks, but six years away from the 2008 housing market collapse that triggered the Great Recession.
Other measures put borrowing costs for a home loan even higher. The Mortgage Bankers Association said Wednesday that the rate on a conventional 30-year mortgage rose this week to 7.16%. Last year at this time, rates on a 30-year mortgage averaged 3.14%.
“As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month,” Freddie Mac Chief Economist Sam Khater said in a statement. “In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”
The Fed has raised its key benchmark lending rate five times this year, including three consecutive 0.75 percentage point increases that have brought its key short-term borrowing rate to a range of 3% to 3.25%, the highest level since 2008. At their last meeting in late September, Fed officials projected that by early next year they would raise their key rate to roughly 4.5%.
Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. That’s influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.
Many potential homebuyers have moved to the sidelines as mortgage rates have more than doubled this year. Sales of existing homes have declined for eight straight months as borrowing costs have become too high a hurdle for many Americans already paying more for food, gas and other necessities.
Higher rates translate into very real costs for homebuyers. Take a home that sells for the U.S. median price of $384,800 and that is purchased with a 20% down payment. At the current mortgage rate of 7.16%, a homebuyer would pay roughly $750 more per month than with a loan at 3.2%, the rate in early 2022.
Meanwhile, some homeowners have held off putting their homes on the market because they don’t want to jump into a higher rate on their next mortgage.
Home prices expected to fall
Housing prices rose roughly 40% during the pandemic, according to Freddie Mac. But the picture next year is likely to be different.
“As the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year,” the lender said in a recent report. “However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.”
The Fed is expected to raise its benchmark rate another three-quarters of a point when it meets next week. Despite the rate increases, inflation has hardly budged from 40-year highs, above 8% at both the consumer and wholesale level.
The Fed rate increases have shown some signs of cooling the economy. But the rate increases have seemed to have little effect on the job market yet, which remains strong with the unemployment rate matching a 50-year low of 3.5% and layoffs still historically low.
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Mortgage rates have more than doubled over the last year — and could keep climbing
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Average long-term U.S. mortgage rates inched up this week ahead of another expected rate increase by the Federal Reserve when it meets early next month.
Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate ticked up this week to 6.94% from 6.92% last week. Last year at this time, the rate was 3.09%.
“The 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand,” Freddie Mac Chief Economist Sam Khater said in a statement. “Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down.”
The average rate on 15-year, fixed-rate mortgages, popular among those looking to refinance their homes, jumped to 6.23% from 6.09% last week. Last week it climbed over 6% for the first time since the housing market crash of 2008. One year ago, the 15-year rate was 2.33%.
Late in September, the Federal Reserve bumped its benchmark borrowing rate by another three-quarters of a point in an effort to constrain the economy and tame inflation. It was the Fed’s fifth increase this year and third consecutive 0.75 percentage point increase. The Fed’s next two-day policy meeting opens Nov. 1, with most economists expecting another big three-quarters of a point hike.
Despite the Fed’s swift and heavy rate increases, inflation has hardly budged from 40-year highs and the labor market remains tight.
Many prospective buyers have been pushed out of the market as average mortgage rates have more than doubled this year, while home prices remain steep and properties are in short supply. Sales of previously occupied U.S. homes fell in September for the eighth month in a row, matching the pre-pandemic sales pace from 10 years ago.
The National Association of Realtors said Thursday that existing home sales fell 1.5% last month from August to a seasonally adjusted annual rate of 4.71 million. That’s slightly higher than what economists were expecting, according to FactSet.
“The surge in mortgage rates to nearly 7% over the past few weeks has triggered a further drop in mortgage demand, and we expect home sales to keep falling until early next year,” Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a report.
Many analysts expect mortgage rates to keep climbing. Whalen Global Advisors forecasts rates to double-digits by April of 2023 and for home prices to sink.
“If you’re planning to move home and will need a new mortgage, you will face a huge increase in rates,” Shepherdson said.
Around the U.S., the typical home value fell 0.3% from July to August and 0.1% from June to July, Zillow said in a report last month. That was the largest monthly decrease since 2011.
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UK mortgage rates are soaring: Here’s what you need to know as a first-time buyer
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Uncertainty around the U.K. housing and mortgage market has spread among first-time buyers.
Resolution Productions via Getty Images
Mortgage products have been pulled, payments are doubling and lenders are backing out of agreed deals; concern and uncertainty among Brits trying to buy a home skyrocketed last month after Finance Minister Kwasi Kwarteng announced his “mini-budget.”
His controversial plan foresees swooping tax cuts and more relaxed rules and regulations for businesses. While the cost-of-living crisis in the U.K. continues, Kwarteng argues his budget will boost growth. Critics say that it will mostly help the rich and make the U.K. more unequal.
The mini-budget did have one positive for those trying to buy a home: Stamp duty, a tax many buyers have to pay when purchasing property, was reduced.
Stamp duty cuts
Only people whose property is worth more than a certain threshold pay stamp duty, and for first time buyers this was already set at a higher level than the average U.K. property price before the mini-budget came into effect. The changes therefore don’t impact a lot of first-time buyers.
While the cuts will benefit some buyers, any gains might be erased by other rising costs, explains Paresh Raja, CEO of financial services firm Market Financial Solutions.
“The cuts to stamp duty […] will definitely help. Unfortunately, a number of other factors are simultaneously making their lives harder: namely, inflation, interest rates and mortgage market disruption,” he told CNBC Make It.
Francis Gill, a financial advisor at London-based firm Humboldt financial, has a similar opinion.
“For people who were very close to being able to afford a purchase, but were still saving for stamp duty costs, this is a win and they should be able to bring forward their purchase date. However, what they have saved on SDLT [stamp duty] will likely be eaten up on higher mortgage rates pretty quickly,” he said.
So, what about mortgage rates?
The housing and mortgage sector has been especially affected, with lenders pulling hundreds of mortgage deals or pricing them at a much higher level after sovereign bond yields and Bank of England rate expectations both surged. This pushed up costs for borrowers as the BOE’s base rate helps price all sorts of loans and mortgages in Britain.
According to Moneyfacts data, the average rate for a 2-year fixed mortgage surpassed 6% this week — up from 2.25% just a year ago. This could go up even further, Nicholas Mendes, a technical mortgage manager at mortgage broker and advisor John Charcol, believes.
“With lenders costs increasing, volatile economic outlook, and factoring in service levels and future rate rises expect, we could be seeing average rate of 7% in the new year,” he said.
Many borrowers and soon-to-be borrowers are already concerned that they will not be able to afford their mortgage payments, which are set to more than double in thousands of cases. Research and expert advice are therefore key for anyone looking for a mortgage deal right now, Gill explains.
“Make sure your credit score is accurately reflected, make sure they speak to an independent broker, consider fixing for a period {…] and consider any Early Repayment Charges,” he suggests.
“Speaking to someone who can expertly analyse their situation is key. Really, really consider if the rates are this high in 2/3 years, (however long they may be considering fixing for) whether the mortgage is affordable,” he adds.
The market is pointing to a difficult 12 months
Nicholas Mendes
Technical mortgage manager at John Charcol
What’s next for the housing market?
Markets are expecting a “difficult 12 months,” Mendes explains. Lenders could increase rates further and the mortgage base rate could rise, while a recession and the cost-of-living crisis are likely to put pressure on homeowners, he says.
But it might not all be doom and gloom as the next year unfolds.
“Property prices are expected to drop in 2023, likewise we are expecting rates to fall slightly from the highs they are today,” Mendes explains.
Raja believes markets could stabilize, or at least be less of rollercoaster ride compared to the last two weeks. “The lending market will calm down after this particular turbulent period. We will not continue to see such fluctuations in rates or products being pulled,” he said.
This would at least ease some of the uncertainty homeowners are currently facing.
For people trying to get onto the property ladder, the chaos might even have some long-term silver linings as others are forced to leave the property market, Gill points out.
“There may be an opportunity if a lot of buy2let landlords leave the market, for there to be an influx of properties for sale and prices come down, they may actually now be able to get on the ladder,” he believes.
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Mortgage rates take a breather after rising for several weeks in a row | CNN Business
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After rising for six weeks in a row, mortgage rates retreated last week.
The 30-year fixed-rate mortgage averaged 6.66% in the week ending October 5, down from 6.70% the week before, according to Freddie Mac.
Mortgage rates have more than doubled since the start of this year as the Federal Reserve continues its unprecedented campaign of hiking interest rates in order to tame soaring inflation. But uncertainty about the possibility of a recession and the impact of rate hikes on the economy have made mortgage rates more volatile.
“Mortgage rates decreased slightly this week due to ongoing economic uncertainty,” said Sam Khater, Freddie Mac’s chief economist. “However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.”
The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money upfront or have less than perfect credit will pay more.
Investors and analysts have been scrutinizing each piece of economic data, searching for clues about the Fed’s next steps and the future of the US and global economies, said Danielle Hale, Realtor.com’s chief economist.
The Fed does not set the interest rates borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and mortgage rates rise.
Over the past month, yields on 10-year Treasuries soared from 3.25% to nearly 4% before falling back around 3.75% this week.
Hale likened investors’ actions to a driver navigating a road in dense fog, prone to over-correcting at each turn.
“Signs that we are closer to the end of the tightening cycle – such as a surprisingly steep decline in job openings – tend to cause rates to slip, while rates bounce higher on signals like robust activity in the services sector,” Hale said.
Even though rates dipped slightly this week, the average interest rate for a 30-year, fixed-rate loan is still more than double what it was at this time last year.
A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 2.99% had a monthly mortgage payment of $1,314, according to calculations from Freddie Mac.
Today, a homeowner buying the same-priced house with an average rate of 6.66% would pay $2,005 a month in principal and interest. That’s $691 more each month.
As rates have been rising over the last several weeks, fewer people have been applying for mortgages said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.
Ongoing economic uncertainty together with Hurricane Ian’s devastation in Florida resulted in a 14% decline in mortgage applications last week from the week before, he said.
MBA also found that an increasing number of borrowers are applying for adjustable rate mortgages, or ARMs. Applications for ARMs climbed to nearly 12% of all applications last week.
The average rate for the ARM tracked by Freddie Mac (a 5-year Treasury-indexed hybrid ARM) was 5.36%, more than a percentage point lower than the 30-year fixed rate.
“While rate increases are needed to tame inflation and alleviate the burden it places on household budgets, higher borrowing costs have caused consumers to think twice about major purchases like homes and cars,” said Hale.
With more prospective buyers sitting on the sidelines, those still looking to buy have a little more breathing room.
Correction: “Today’s home shoppers have more choices, but for many, the increased cost of financing and higher home prices mean fewer affordable options,” Hale said. “As challenging as it may be to set and stick to a budget in this environment of rising prices and rates, it’s more important than ever to do so.”
A previous version of this story misstated the number of weeks mortgage rates have been rising. Rates rose for six consecutive weeks before falling this week.[ad_2]