Average yields on 30-year fixed-rate mortgages were 5.55% in the week ending August 25, up from 5.13% the week before, according to Freddie Mac. This is significantly higher than last year’s 2.87%.
Freddie Mac chief economist Sam Cater said a combination of rising mortgage rates and slowing economic growth is weighing on the housing market.
“Home sales continue to decline, prices are subdued and consumer confidence is low,” he said. “But with demand waning, there are onlookers who are still waiting for potential homebuyers to return to the market.”
“It will underscore the central bank’s commitment to continue monetary tightening this year,” Latiou said. “Continued rate hikes by the Fed, combined with a shrinking balance sheet due to roll-offs of mortgage-backed securities, are expected to maintain upward pressure on mortgage rates.”
Looking ahead to the second half of the year, he said consumer confidence and ability to weather higher prices will be key to keeping the U.S. economy moving and avoiding a recession.
The upside for prospective buyers is that the housing market is offering discounts on a growing number of homes. But there are also fewer sellers putting homes on the market, further reducing an already tight housing inventory.
That’s worrying, said Ratiu.
“Amid clear signs that affordability is dampening demand, some homeowners may fear they have missed the peak of the market,” Ratiu said. “The move to balance is losing momentum as the real estate market is still competing with significant buildings under construction, exacerbated by construction firms cutting single-family starts.”
Mortgage affordability improved over the past month
After a surge in the first half of the year, July new mortgage payments fell slightly from June, according to a Mortgage Bankers Association survey.
The national average payment in July was $1,844, down $49 from June’s $1,893. However, monthly payments for the first seven months of the year are still up by $461, up 33.3% from January.
A slight drop in mortgage rates, smaller loan sizes and lower monthly payments contributed to the relative improvement in affordability in July.
“Homebuyer demand has been sluggish this summer as lingering economic uncertainty, high inflation and still-high mortgage rates have delayed many prospective home seekers,” said the Institute of Housing America. A combination of the market and moderate house price increases could push some of these buyers back in the coming months.”
Still, mortgage costs are significantly higher than they were a year ago, reducing the purchasing power of buyers. In addition, rising house prices and inflation account for a large portion of future homebuyers’ income.
A year ago, buyers who paid a median $390,000 home with a 20% down payment and the rest with a 30-year fixed-rate mortgage with an average interest rate of 2.87% reported monthly mortgage payments of was $1,294. From Freddie Mac.
Today, if a homeowner bought a similarly priced home at an average interest rate of 5.55%, they would be paying $1,781 a month in principal and interest. $487 more each month.