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Mortgage rate climb, closing in on 7%

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After taking a breather last week, mortgage rates rose again, approaching 7%.

According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage was 6.92% in the week ending October 13, up from 6.66% the week before. This is the highest average interest rate since April 2002. A year ago, the 30-year fixed rate was 3.05%.

Mortgage rates have more than doubled over the past year as the US Federal Reserve (Fed) launched an unprecedented rate hike campaign to curb skyrocketing inflation. A combination of central bank rate hikes, investor fears of a recession and various economic news has caused mortgage rates to fluctuate over the past few months.

Freddie Mac Chief Economist Sam Cater said: “While strong job and wage growth keeps consumer balance sheets positive, persistent inflation, recession fears and housing affordability have led to a sharp decline in demand for housing. ”

He said the coming months will undoubtedly be crucial for the economy and housing market. Home sales are already declining and prices are cooling.

According to Freddie Mac, the average mortgage interest rate is based on a survey of traditional homebuying loans to high-credit borrowers with a 20% down payment. However, many buyers with lower upfront payments or less than perfect credit will pay more.

The Fed’s efforts to curb inflation have had a major impact on the mortgage market.However, inflation remains above expectations and central banks continue to aggressively raise interest rates.

The Federal Reserve does not directly set the interest rates borrowers pay on mortgages, but its actions affect them. . When investors see or anticipate rate hikes, yields move higher and mortgage rates move higher.

George Latiou, senior economist and economic research manager at Realtor.com, said:

Higher interest rates have resulted in more potential buyers leaving the market, softening home prices and lower sales. However, there is still a shortage of available homes in relation to buyer demand, keeping prices high.

“The result is clearly rising rents and rising home prices,” said Lawrence Yun, chief economist at the National Association of Realtors. “Despite expected home price declines in some markets (mainly California), housing will continue to be unaffordable while rents continue to weigh on non-owners.”

Yun said the Federal Reserve was unlikely to give up its aggressive monetary policy of raising interest rates even with a recession looming.

“With 10-year Treasury yields surpassing 4% this morning, mortgage rates will struggle to maintain an average of 7% over the next few weeks,” Yoon said.

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said fewer people are looking for a mortgage to buy or refinance a home, and the economic uncertainty is pushing credit down. He said it was getting harder to get.

“We have seen credit tightening as both lenders and borrowers grapple with ongoing economic uncertainty and affordability issues,” he said. “Despite strong wage and employment gains in September, homebuyers remain reluctant to enter the housing market.”

Rising mortgage rates are making it even harder for prospective buyers to afford a home.

“With incomes lagging inflation, the ability of homebuyers to finance their purchases has been severely curtailed by mortgage rates that surged from 3.1% in early 2022 to nearly 7%,” said Ratiu. says Mr.

For a family with a median household income of $71,000 and a 20% down payment, a typical homebuying budget this January was $448,700, according to Realtor.com. This week, the same family could only buy her $339,200 home.

And my monthly payments have increased significantly.

A year ago, Freddie calculated, a buyer who paid a 20% down payment on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage with an average interest rate of 3.05% would have a monthly mortgage payment of It was $1,324. Mac.

Today, if a homeowner bought a similarly priced home at an average interest rate of 6.92%, they would be paying $2,059 a month in principal and interest. $735 more each month.

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