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The report, released Thursday, said fixed-mortgage rates averaged 5.66%, almost double what they were a year ago, amid the market’s renewed perception of a more aggressive federal monetary policy.
“The increase in mortgage rates is coming at a particularly vulnerable time for the housing market, as sellers are recalibrating their pricing due to lower purchase demand, likely resulting in continued price growth deceleration.,” said Sam Khater, Freddie Mac’s chief economist.
According to the report:
- 30-year fixed-rate mortgage averaged 5.66% with an average 0.8 point as of Sept. 1, up from last week when it averaged 5.55%. A year ago at this time, the 30-year FRM averaged 2.87%.
- 15-year fixed-rate mortgage averaged 4.98% with an average 0.8 point, up from last week when it averaged 4.85%. A year ago, the 15-year FRM averaged 2.18%.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.36% with an average 0.4 point, up from last week when it averaged 4.36%. A year ago, the 5-year ARM averaged 2.43%.
The survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.
Paul Thomas, vice president of Zillow Home Loans, said that while inflation measures are improving, the rate of inflation is still well above the Federal Reserve’s long-term targets.
“Data releases last week showed that economic activity is still robust and labor markets continue to be very tight,” Thomas said. “With Fed officials all indicating a commitment to containing inflation as the main goal in the near term, markets have adjusted expectations to account for further significant increases in the Fed Funds rate.”
Thomas added that investors are pricing in a higher probability of a 75-basis-point rate hike at the Fed’s September meeting, and a likely higher terminal rate, driving up interest rates in Treasuries and mortgage-backed securities.
“Markets will be focused on employment data releases later this week and what implications those results may have on the direction of rates,” he said.
George Ratiu, Realtor.com's manager of economic research, said financial markets continue to react to the Fed’s firm commitment to monetary tightening in order to bring inflation closer to the 2% mark.
“This week’s remarks by Cleveland Fed President Mester — who is also a voting member of the FOMC — were a clear indication of the current policy direction,” Ratiu said. “She stated that the Fed needs to drive the benchmark rate above 4% by early 2023 and keep it steady through next year. The current policy rate is in the 2.25%-2.5% range, pointing to expectations of aggressive rate increases over the next few months.”
Ratiu said homebuyers can expect mortgage rates to stay in the 5%-6% range over the next few months, as a combination of still-high inflation and the Fed’s increasing borrowing costs will keep them elevated.
“With rates about 250 basis points higher than a year ago, the median monthly payment will hover near $2,000, about 55% more than last year,” he said. “This will challenge many first-time buyers, especially as wages are rising at just 5% per year.”
Ratiu said the silver lining for those still looking for a home is that houses are staying on the market longer, pushing sellers to drop asking prices and leaving more room for negotiations.
“As we move into the fall, and the pace of sales slows even further, some buyers may find discounts growing larger, offering opportunities that fit within their budgets,” he said.