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Mortgage rates take a breather after rising for several weeks in a row

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Mortgage rates fell last week after rising for six consecutive weeks.

The average rate on 30-year fixed-rate mortgages was 6.66% in the week ending October 5, down from 6.70% the week before, according to Freddie Mac.

Mortgage rates have more than doubled since the beginning of the year as the US Federal Reserve (Fed) continues its unprecedented campaign of rate hikes to curb soaring inflation. However, a possible recession and uncertainty about the economic impact of rate hikes have made mortgage rates more volatile.

“Mortgage rates have fallen slightly this week as economic uncertainty continues,” said Sam Cater, chief economist at Freddie Mac. up, meaning homes will continue to be more expensive for potential homebuyers.”

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.

Investors and analysts are scrutinizing each piece of economic data for clues about the Fed’s next steps and the future of the U.S. and global economy, according to Realtor.com chief economist Daniel Hale.

The Federal Reserve does not directly set the interest rates borrowers pay on mortgages, but its actions affect them. . When investors see or anticipate a rate hike, they often sell government bonds, which drives up yields and increases mortgage rates.

After jumping from 3.25% to nearly 4% last month, 10-year Treasury yields fell to around 3.75% this week.

Hale likened the investor’s behavior to a driver driving on a road in heavy fog.

“Signs that we are nearing the end of the tightening cycle, such as a surprisingly sharp decline in employment, tend to push interest rates lower, while signals such as strong activity in the service sector push rates higher,” Hale said. rice field.

Although interest rates have fallen slightly this week, the average interest rate on a 30-year fixed-rate loan is more than double what it was at this time last year.

A year ago, 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 rate of 2.99% paid $1,314 a month, according to Freddie’s calculations. . Mac.

Today, if a homeowner bought a similarly priced home at an average interest rate of 6.66%, they would be paying $2,005 a month in principal and interest. $691 more each month.

Mortgage Bankers Association president and CEO Bob Broeksmit said interest rates have risen in the past few weeks, resulting in fewer people applying for home loans.

Continued economic uncertainty, combined with the devastation in Florida from Hurricane Ian, saw last week’s mortgage applications drop 14% from the week before.

MBAs also found more borrowers applying for variable rate mortgages (ARMs). Last week, ARM applications reached almost 12% of all applications.

The average ARM interest rate tracked by Freddie Mac (a 5-year Treasury indexed hybrid ARM) is 5.36%, more than a percentage point lower than the 30-year fixed rate.

“Higher interest rates are needed to keep inflation under control and ease the burden on households, but rising borrowing costs are making consumers hesitate to make large purchases such as homes and cars,” Hale said. said.

With more potential buyers sitting on the sidelines, those still considering a purchase have a little more breathing room.

Correction: “Today’s homebuyers have more options, but for many, rising financing costs and higher home prices mean fewer affordable options,” Hale said. “It may be difficult to set and maintain a budget in this environment of rising prices and interest rates, but it is more important than ever to do so.”
An earlier version of this article incorrectly stated the number of weeks that mortgage rates were rising. Interest rates rose for a sixth straight week before falling this week.

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