Mortgage Rates Top 7% for Third Time, Housing Market Set for Downturn

The 30-year fixed-rate mortgage fell from 6.95% on Monday to 7.01% on Tuesday afternoon, according to Mortgage News Daily. The 30-year rate was last above 7% in March, according to historical data.

(Other groups like the Mortgage Bankers Association and Freddie Mac, which also publish weekly rate surveys, had yet to release their reports as of Tuesday afternoon.)

“We’ll probably need a few weeks of data to know if this is an anomaly or a trend,” Jacob Channel, senior economist at LendingTree, told CNET.

Rates have been volatile in recent weeks, he added. “Even if they don’t stay above 7%, the fact that they’re in that 6% to 7% range [is] challenging for home buyers as home prices remained high in most parts of the country,” Channel explained.

“The reasons for the rate hike aren’t clear – they could reflect bond market nervousness about the unresolved debt ceiling deadline approaching as early as next week, or perhaps growing concern that the The Fed will choose to continue raising rates in its fight against inflation,” Jeff Tucker, senior economist at Zillow ZG,
+0,22%,
said Deadline.

“Regardless of the source, these higher rates are a tough pill for buyers to swallow, and they give homeowners one more reason to sit back and avoid listing their homes,” he added. .

Many Americans feel discouraged by the housing market. The number of people who think now is a good time to buy a home recently hit a 45-year low.

The higher rates added an average of $121 to monthly mortgage payments since last year

Higher mortgage rates, of course, directly translate to a higher cost of ownership.

To be clear, most homeowners who have a 30-year fixed rate mortgage will not see an increase in their interest charges because they have locked in a fixed rate for the term of the loan.

But for new buyers who are in the process of getting a mortgage, owning a home is getting more expensive: Between April 2022 and April 2023, the 30-year mortgage rate increased by an average of 1.85 percentage points in the 50 states, LendingTree said. in a separate report.

That pushed up monthly mortgage payments nationwide by an average of $121 per month, according to LendingTree. That means the typical household is paying about $1,452 more per year in mortgage payments.

Mortgage payments differ significantly, depending on the price of the home a buyer is buying; where they buy, as prices may vary by geography; and how big their down payment is.

See: Homebuyers will now be able to deposit as little as 1% on their home, says Rocket Mortgage

The median monthly mortgage payment paid by homeowners in Hawaii was the highest in the country in March, at around $4,400, while West Virginia homeowners typically paid around $1,100, according to the Mortgage Bankers Association.

With mortgage rates rebounding as house prices hold, “people have to really buckle up,” Channel said,

For home buyers looking to secure a lower home loan rate, shop around, advised Lisa Sturtevant, chief economist at Bright MLS, in a conversation with CNET.

“Borrowers should really shop around and get quotes from multiple lenders,” she explained, particularly because rates have been volatile over the past few months, which means there are variations in rates and terms between lenders.

Not all lenders will offer a potential buyer a 30-year mortgage at a rate of 7%, Channel said. And rates could drop significantly, depending on the state of the US economy. But they could also rise sharply.

When will mortgage rates go down?

For those waiting for rates to come down, don’t hold your breath, Sturtevant said. “In the near term, the debt ceiling debate has created uncertainty and will likely keep rates high, if not push them even higher,” she explained. Zillow expects 30-year mortgage rates to top 8% if the United States fails to repay its debt.

If the US economy goes into recession, rates will fall, the two experts said.

Still, don’t expect rates to return to pandemic levels of 2% and 3%, she advised. “I expect the average rate on a 30-year fixed rate mortgage to be around 6% at the end of 2023,” Sturtevant said.

Since Freddie Mac released weekly rate data, dating back to 1971, rates have only come close to 2% once, Channel noted.

How to win a bidding war

If you’re a hopeful buyer embroiled in a bidding war right now, the best advice Sturtevant offered was to block your funding.

Buyers could also consider offering sellers the option of renting the house to them for a period of time, she suggested. “That could be an incentive if the seller is still looking for a place to move.”