Mortgage rates fell last week after rising for six consecutive weeks.
According to Freddie Mac, the average 30-year fixed-rate mortgage rate was 6.66% for the week ending October 5. This is down from 6.70% the previous week.
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The Federal Reserve’s unprecedented campaign to raise interest rates to control inflation has seen mortgage rates more than double since the beginning of the year. Mortgage rates have become more volatile because of uncertainty over the possibility of a recession, and the economic impact of rate hikes.
Sam Khater, chief economist at Freddie Mac, stated that mortgage rates fell slightly this week because of ongoing economic uncertainty. “However, rates are still quite high compared with just one year ago. This means that housing continues to be more costly for potential homebuyers.”
According to Freddie Mac, the average mortgage rate is based upon a survey of conventional home-purchase loans for borrowers who have excellent credit and put 20% down. However, buyers who have less than perfect credit or put down less money upfront will pay more.
According to Danielle Hale (Realtors.com’s chief economist), analysts and investors have been analyzing every piece of economic data in an effort to find clues about the Fed’s next steps and the future direction of the US and global economies.
Although the Fed doesn’t directly set mortgage interest rates, its actions have an impact on them. The yield on 10-year US Treasury bonds tends to be the benchmark for mortgage rates. Investors often sell government bonds when they anticipate rate increases. This sends yields higher, and mortgage rates rise.
The yields on 10-year Treasuries rose from 3.25% up to almost 4% over the past month before falling back to 3.75% this Week.
Hale compared investors’ actions to a driver driving in dense fog, prone over-correcting at every turn.
Hale stated that signs that we are closer towards the end of the tightening cycles – such a surprisingly steep fall in job openings, tend to cause rates slip. Rates bounce higher on signals like strong activity in the services sector.
Despite a slight drop in rates this week, the average fixed-rate interest rate on a 30-year loan is still higher than it was last year.
According to calculations by Freddie Mac, a buyer who paid 20% down on a home worth $390,000 and financed it with a fixed-rate 30-year mortgage at 2.99% had a monthly payment of $1,314.
A homeowner purchasing a house at the same price today would pay $2,005 per month in principal and interest. This is $691 more per month.
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According to Bob Broeksmit (president and CEO of Mortgage Bankers Association), as rates have risen over the past few weeks, fewer people are applying for mortgages.
He said that the combination of Hurricane Ian’s destruction in Florida and ongoing economic uncertainty resulted last week in a 14% decrease in mortgage applications compared to the previous week.
MBA also found that borrowers are increasingly applying for adjustable-rate mortgages (or ARMs) to finance their homes. Last week, nearly 12% of all applications were for ARMs.
The average rate of the ARM that Freddie Mac tracked (a 5-year Treasury-indexed hybrid ARM), was 5.36%. This is more than a percentage lower than the 30-year fixed rate.
“While rate increases are necessary to tame inflation, and relieve the burden it places upon household budgets,” stated Hale. However, higher borrowing costs have made major purchases such as homes, cars and other major purchases more difficult.
With more potential buyers waiting on the sidelines, those still interested in buying have a little more breathing space.
Correct: Hale stated that while home buyers have more options today, higher home prices and increased financing costs mean that there are fewer affordable options. It’s even more important than ever to establish and adhere to a budget in these times of rising rates and prices. An earlier version of this story misrepresented the number of weeks that mortgage rates have been rising. Rates rose for six consecutive week before falling this week.