Mortgage rates jump to 6.81%, their highest level this year
Jul 6, 2023, 11:21 AM
(David Paul Morris/Bloomberg/Getty Images via CNN)
The 30-year fixed-rate mortgage averaged 6.81% in the week ending July 6, up from 6.71% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.30%.
“Mortgage rates continued their upward trajectory again this week, rising to the highest rate this year so far,” said Sam Khater, Freddie Mac’s chief economist. “This upward trend is being driven by a resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve. These high rates combined with low inventory continue to price many potential homebuyers out of the market.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Rates ticked up last week, mirroring the trend of the yield on 10-year Treasuries, which are reacting to economic data that suggests stubborn inflation may be stuck at an elevated level.
The latest Personal Consumption Expenditures price index, a crucial indicator monitored by the Federal Reserve for monetary policy decisions, suggests that inflation isn’t retreating as quickly as hoped, said Jiayi Xu, economist at Realtor.com.
“Although the headline PCE decreased from 4.3% in April to 3.8% in May, the core PCE, which excludes volatile food and energy prices, only retreated slightly on a year-over-year basis, down from 4.7% in April to 4.6% in May,” she said. “Meanwhile, the newly released Fed minutes reaffirms officials’ determination to bring inflation back to the target 2% range.”
While this may put near-term upward pressure on interest rates, she said, including mortgage rates, she anticipates a gradual decrease that could bring rates close to 6% by the year’s end.
Housing market headwinds
With the average rate for a 30-year fixed-rate mortgage above 6.6% every week in June, the summer market has been challenging, both for home sellers and buyers.
“For sellers, these high mortgage rates have been compelling existing homeowners to delay their selling and moving plans, despite the fact that home prices are still high and consumers generally agree that it’s a good time to sell,” said Xu.
Nearly 82% of home shoppers reported feeling “locked in” by their existing low-rate mortgage, according to Realtor.com, while around 1 in 7 homeowners without a selling plan cited their current low rate as their reason for remaining on the sidelines.
“As a result, the number of homes for sale remained lower than last year’s levels, with year-to-date new listings lagging 20% behind last year’s pace,” said Xu.
“In addition to the limited inventory for buyers, the rising interest rates also pose a significant concern for those intending to purchase a home within the next year,” she said, citing Realtor.com data. “About 78% of home shoppers planning to buy in the near future anticipate being priced out of the market if home prices and mortgage rates both continue to rise.”
Mortgage applications fell to their lowest level in a month last week as rates for most loan types increased, according to the Mortgage Bankers Association.
“Purchase applications decreased for the first time in a month, as homebuyers remained sensitive to rate changes,” said Joel Kan, MBA’s vice president and deputy chief economist. “Rates are still over a percentage point higher than a year ago, and housing affordability is still a challenge in many parts of the country.”
He added, however, that the average loan size for a purchase application declined to $423,500 — its lowest level since January 2023.
“This was likely driven by reduced purchase activity in some high-price markets and more activity in some of the lower price tiers as buyers searched for more affordable options.”
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