Mortgage Rates (Finally) Ease After Six Weeks Of Record Highs

Mortgage Rates (finally) Ease After Six Weeks Of Record Highs

Rates for home loans fell slightly this week, bringing a little reprieve for home shoppers who faced six straight weeks of rate increases.

The 30-year, fixed-rate mortgage averaged 6.66% for the week ending October 6, down from 6.7% a week ago, according to Freddie Mac. That’s more than double the 2.99% rate a year ago, and remains at a 15-year high for the most popular mortgage loan product.

The 15-year, fixed-rate mortgage averaged 5.9% this week, down from 5.96% a week before. A year ago, it averaged 2.23%.

The average 5/1 adjustable-rate mortgage (ARM) was at 5.36%, up from 5.3% last week and 2.52% a year ago. As borrowing costs have surged, ARMs have become more popular since they now have a lower rate than fixed-rate mortgages. Nearly 12% of all applications for mortgages in the latest week were for ARMs, according to data from the Mortgage Bankers Association (MBA). That’s significantly up from just 3% of mortgage applications in January 2022.

ARMs have lower interest rates because they represent less risk for lenders: they’re only committing to a lower rate for an initial period, usually five or seven years. After that, rates reset, and borrowers bear the risk.

The rates above don’t include fees and other costs associated with obtaining home loans.

Related: Compare Current Mortgage Rates

Where Will Mortgage Rates Go Next?

Rates for home loans have already surged past expert predictions several times this year, and there’s little consensus on what might happen next. In a recent round of home loan rate forecasts, analysts predict the 30-year, fixed-rate mortgage will end the year anywhere from 5.5% to 7%.

Interest rates are jumping largely because the Federal Reserve is trying to slow inflation by hiking the federal funds rate a handful times so far this year. But it’s challenging to control inflation without derailing the economy altogether—and that tension is playing out in the housing market as well.

The first few months of the Fed’s rate-hiking regime brought a much-needed slower pace to the frenzied real estate market. But as rates exceeded 6% beginning in September, it became too high for many home shoppers to manage, and in recent weeks, housing activity came to a crashing halt.

Applications for mortgages tumbled more than 14% for the week ending October 5 compared to the week before, according to the MBA. Weekly mortgage application totals now stand at the lowest level since 1997. Pending home sales have fallen for three consecutive months to a 2% drop in August, according to the National Association of Realtors (NAR).

If activity slows enough, both interest rates and home prices will likely decline, which may convince buyers to re-enter the market. But housing experts remain uncertain about if and when that will happen.

Where is The Housing Market Headed?

All across the country, real estate agents describe the same scenario: It may still be a seller’s market, but buyers need to be convinced.

“We’ve had a few buyers still looking and some who have gone under contract. But one or two have put their search on hold,” says Maura Neill, a Realtor with RE/MAX Around Atlanta Realty. “The average consumer sees that rates are higher than what we saw last fall and last spring, so that definitely leads to concerns. There’s a lot of education we have to do.”

It’s not just buyers who need education—real estate agents say sellers are also having a hard time grasping that the feeding frenzy of the last two years is over. People ask “what about my neighbor, they got this?” Neill says.

“We have to remind them that people’s buying power has changed. People’s confidence has shifted,” she says. “Many people are more concerned about buying and then having prices dip.”

In the suburbs north of Boston, William Raveis real estate agent Best Mortgage Lenders of October 2022

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