Mortgage rates have risen by more than a quarter of a percentage point this week to a 14-year high, which is no relief to homebuyers who have been on the sidelines.
The average interest rate for 30-year fixed mortgages rose to 6.29% from 6.02% last week, according to the report. freddie machit its highest level since the last week of October 2008. Interest rates are more than 3 percentage points higher than at the beginning of the year.
This year’s steep rise in interest rates has only made the housing market out of reach for many even worse, forcing prospective buyers to put their buying plans on hold. Those who remain, however, find it easier to negotiate with sellers than they did when the year began.
George Latiou, economic research manager at Realtor.com, said: “Today’s housing market is still sluggish for buyers who are seeing rising home prices reduce their take-home pay and rising interest rates reducing shopping budgets. It’s not very affordable,” he said. “In many places, price cuts may be the only viable option to restore housing balance and affordability.”
Why Have Mortgage Interest Rates Rise?
The surge in 30-year rates came as the Federal Reserve reiterated its firm commitment to contain runaway prices after raising short-term rates on Wednesday. Three-fourths of a point benchmark interest rate As expected.
Yields on 10-year Treasuries, which fixed mortgage rates tend to track, jumped to their highest level since 2011 on hopes of fighting inflation. Mortgage interest rates soon followed.
The Fed began reducing the amount of mortgage-backed securities it holds on its balance sheet this month, according to Ratiu.
“These actions will continue to raise mortgage rates until inflation shows signs of a more substantial easing,” Ratiu wrote.
Many buyers withdraw
Buyers have been pouring out of the exit since mortgage rates really started to spike in March.
The volume of mortgage applications for purchases is down 30% year-on-year, according to the . Mortgage Bankers Association Latest Dataeven though activity registered a small seasonally adjusted increase of 1% per week.
Sale of Pre-owned homes also decreased for the seventh straight month According to the National Association of Realtors, median listing prices fell for the second month in a row in August. The August price was $389,500 for him, down $24,000 from his June high of $413,800, but still $7.7.% higher than a year ago.
The median home’s monthly payment at the 30-year rate is about $900 higher than it was a year ago. Realtor.comor about $11,000 more per year.
“Sixty percent of my clients who were pre-approved months ago want to wait to buy a home,” said Scott Sheldon, California branch manager at mortgage lender New American Funding, Yahoo “They were all buying at less than 10% down, so I can’t blame them,” he told Money.
Sellers lose some bargaining power
Sellers have noticed a sharp change in their market position.
about 11% of homes for sale have been discounted Last month, Realtor.com data showed a year-on-year increase of 19.4%, close to the 2017-2019 average. redfindown from 49% a year ago, with 35% asking for the above.
Homebuilders have also offered concessions As the buyer pool shrinks.
Nearly 25% of builders reported lower prices this month from 19% in August. National Association of Home Builders Monthly Surveys and Indexeshalf offered mortgage rate buydowns, free amenities, or other incentives to sell.
This is some relief for buyers still in the market, Sheldon said, who are using their newfound bargaining power to get price cuts to offset the recent rise in interest rates.
“Buyers who can handle a temporary high interest rate storm will do very well in their homes. Every purchase we make has a markdown or price incentive,” Sheldon said. .
But “it’s still challenging,” he added.
“Everyone is paying points, so the closing cost is no longer 2% to 2.5% of the purchase price, but 3% to 3.5%. ‘s money.”
Janna is a Personal Finance Editor at Yahoo Money. follow her on her twitter @ Gianna Herron.