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Mortgage Rates Climb to 20-Year High: Freddie Mac
By Leslie Cook MONEY RESEARCH COLLECTIVE
The 30-year fixed rate mortgage is averaging 6.92% this week according to Freddie Mac. Last week, the average rate was 6.66%.
Mortgage rates resumed their march toward 7% this week as hopes faded of a Federal Reserve monetary policy about-face.
The 30-year fixed rate mortgage is averaging 6.92% this week according to Freddie Mac. Last week, the average rate was 6.66%. After remaining low through 2020 and 2021, mortgage rates have taken off this year — more than doubling over the past 9 months. Rates have not been this high since April 2002.
Rapidly rising interest rates have led many potential homebuyers to step away from the housing market as mortgage payments keep climbing.
A family earning a median household income of $71,000 and making a down payment of 20% could afford a $448,700 home in January when mortgage rates were 3.11%. Today, with rates close to 7%, that same family can afford a $343,000 home, according to George Ratiu, senior economist at Realtor.com.
“Homebuyers’ are responding to worsening affordability conditions by moving away from expensive cities, seeking lower cost markets around the country,” said Ratiu in a statement.
As more buyers retreat from the market, home sellers are having to adapt as well. Until recently, competition was so tight that many homes sold for thousands of dollars above list price. Since June, however, more cities are seeing list price reductions as the market cools.
Mortgage rates were higher for other loan categories as well. The 15-year fixed-rate mortgage increased to 6.09% and the 5/1 adjustable rate loan moved up to 5.81%.
Mortgage rates continue to climb
Mortgage rates jumped following last week’s news on employment gains and wage increases. Today’s inflation report may mean even higher rates next week.
The economy added 263,000 jobs in September according to the Labor Department, below market expectations and the slowest month-over-month gain in more than a year. However, the unemployment rate decreased to 3.5% and hourly wages increased by 5% year-over-year, both of which signal the economy still has plenty of steam despite the Fed’s efforts to curb inflation.
“The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, in a press release. “However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.”
The hope was that the Fed would ease back on rate increases in order to avoid a ‘hard landing’ — a deep recession that would achieve the Fed’s goal of bringing inflation back down to its target range of 2% but hurt employment, housing and stock markets.
Indeed, in a speech on Wednesday, Fed Governor Michelle Bowman reiterated the central bank’s commitment to continue raising the federal funds rate until inflation is well under control. She noted that “to bring inflation down, the federal funds rate will need to move up to a restrictive level and remain there for some time.”
Bowman also noted that if inflation does not show signs of a consistent decline, future “sizeable increases in the target range for the federal funds rate should remain on the table.”
With today’s announcement that inflation increased 8.2% in September — more than expected — despite the Fed’s already substantial rate increases, another 0.75 percentage point increase at the next policy meeting in November appears likely.
The Federal Reserve has already increased the federal funds rate five times this year, raising the rate from near zero in March to its current 3.25%. The first two rate hikes were increases of 0.50 percentage points, but as inflation rose to 9.1% in June, the last three rate hikes have been more sizeable increases of 0.75 percentage points.
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Leslie Cook is the Lead Mortgage Reporter covering real estate and mortgages for Money. She started out over 30 years ago as a business reporter with Caribbean Business newspaper in San Juan, Puerto Rico, covering computers, and human resources. Her work has also appeared in Reuters and she graduated Cum Laude from Bryn Mawr College in Pennsylvania with a bacheloru2019s degree in history.