Mortgage Rates Spike To 6.29% As Home Affordability Gets Tighter

Mortgage Rates Spike To 6.29% As Home Affordability Gets Tighter
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Rates for home loans roared even higher this week in tandem with the Federal Reserve’s actions to tamper inflation by hiking the federal funds rate for the fifth time this year. While home prices seem to be cooling recently, it has not been enough to compensate for rapidly rising mortgage rates, making homeownership even less affordable for many Americans.

The 30-year, fixed-rate mortgage averaged 6.29% for the week ending September 22, up from 6.02% the previous week, according to Freddie Mac. It was one of the biggest weekly moves in an already volatile year for the mortgage market. A year ago, the popular mortgage product averaged less than half of that at 2.88%.

The 15-year, fixed-rate mortgage averaged 5.44%, versus 5.21% last week. Last year at this time, it averaged 2.15%.

The average 5/1 adjustable-rate mortgage (ARM) was 4.97%, up from 4.93% last week and 2.43% a year ago. With lower rates than those on fixed-rate mortgages, ARMs have become more popular this year: 9.1% of all applications for mortgages in the latest week were for ARMs, according to data from the Mortgage Bankers Association (MBA).

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

Related: Compare Current Mortgage Rates

What’s Ahead for Mortgage Rates?

Some of the latest forecasts for mortgage rates were published in late summer, before a resurgence of inflation led the Fed to raise interest rates further. At that time, economists were calling for mortgage rates to average between 5.5% and 6% for 2022. But predictions might get pushed higher after the central bank hiked the federal funds rate another 75 basis points Wednesday.

The Fed decision “means that mortgage rates are expected to continue rising in the coming months,” said George Ratiu, manager of economic research for Realtor.com, in a statement. “While the Fed’s short-term rate does not directly impact long-term mortgage rates, the trickle-down effect of rising borrowing costs means that homebuyers will continue to feel higher monthly payments.”

Realtor.com data shows that the buyer of a median-priced home this week faces a monthly payment 66% more than a year ago. Meanwhile, an MBA report released Thursday showed that the national median mortgage payment was $1,839 in August, up by $456 in the first eight months of the year, though it was down by $4 from the previous month.

Is Now a Good Time to Buy a House?

Even as some people, particularly first-time homebuyers, are getting priced out of the market, many Americans continue to shop for houses. Home sales slipped by only a fraction—0.4%— in August compared to July, according to the National Association of Realtors. But sales dropped nearly 20% from a year ago.

“Listen, the market has shifted,” says Marjorie Youngren, who leads a William Raveis Realtor team in Lynnfield, Massachusetts. “The first-time buyer market is severely impacted. But people who have money, have money.”

One of the biggest shifts Youngren sees now compared to the frenzied past few years is that buyers aren’t just buying to buy: “Buyers really have to find something they love,” she says. And they’re having those properties inspected—a step some homebuyers gave up in their contingencies just to win a bid on the house during the frenetic competition in recent years.

Put simply, Youngren tells shoppers, “Don’t buy something you can’t afford.”

“I don’t want people to be house poor,” she says. “Sit back, let’s watch. Because a lot of houses are going to be overpriced.”

If the higher interest rate on a fixed mortgage seems costly, starting with a lower rate on an adjustable-rate mortgage (ARM) and then switching to a fixed rate a few years from now when the adjustment period hits might be a good step. But that’s also betting that rates will be lower or more affordable a few years from now.

Mortgage rates move in cycles and are likely to fall at some point, when a buyer can ideally refinance into a fixed-rate loan, Youngren says.

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