Mortgage rates have more than doubled over the last year — and could keep climbing
Average long-term U.S. mortgage rates inched up this week ahead of another expected rate increase by the Federal Reserve when it meets early next month.
Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate ticked up this week to 6.94% from 6.92% last week. Last year at this time, the rate was 3.09%.
"The 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand," Freddie Mac Chief Economist Sam Khater said in a statement. "Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down."
The average rate on 15-year, fixed-rate mortgages, popular among those looking to refinance their homes, jumped to 6.23% from 6.09% last week. Last week it climbed over 6% for the first time since the housing market crash of 2008. One year ago, the 15-year rate was 2.33%.
Late in September, the Federal Reserve bumped its benchmark borrowing rate by another three-quarters of a point in an effort to constrain the economy and tame inflation. It was the Fed's fifth increase this year and third consecutive 0.75 percentage point increase. The Fed's next two-day policy meeting opens Nov. 1, with most economists expecting another big three-quarters of a point hike.
Despite the Fed's swift and heavy rate increases, inflation has hardly budged from 40-year highs and the labor market remains tight.
Many prospective buyers have been pushed out of the market as average mortgage rates have more than doubled this year, while home prices remain steep and properties are in short supply. Sales of previously occupied U.S. homes fell in September for the eighth month in a row, matching the pre-pandemic sales pace from 10 years ago.
The National Association of Realtors said Thursday that existing home sales fell 1.5% last month from August to a seasonally adjusted annual rate of 4.71 million. That's slightly higher than what economists were expecting, according to FactSet.
"The surge in mortgage rates to nearly 7% over the past few weeks has triggered a further drop in mortgage demand, and we expect home sales to keep falling until early next year," Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a report.
Many analysts expect mortgage rates to keep climbing. Whalen Global Advisors forecasts rates to double-digits by April of 2023 and for home prices to sink.
"If you're planning to move home and will need a new mortgage, you will face a huge increase in rates," Shepherdson said.
Around the U.S., the typical home value fell 0.3% from July to August and 0.1% from June to July, Zillow said in a report last month. That was the largest monthly decrease since 2011.