After rising for six straight weeks, mortgage rates fell last week.
The 30-year mortgage averaged 6.66% in the week ending October 5, down from 6.70% the previous week, according to Freddie Mac.
Mortgage rates have more than doubled since the beginning of this year as the Federal Reserve continues its unprecedented campaign to raise interest rates in order to tame spiraling inflation. But the uncertainty about the possibility of a recession and the impact of higher interest rates on the economy has made mortgage rates more volatile.
“Mortgage rates have fallen slightly this week due to continued economic uncertainty,” said Sam Khater, chief economist at Freddie Mac. “However, rates remain very high compared to just one year ago, which means housing is still more expensive for potential homebuyers.”
The average mortgage rate is based on a survey of traditional home purchase loans for borrowers who have down 20% and have excellent credit, according to Freddie Mac. But many buyers who give less money up front or have less than perfect balance will pay more.
Danielle Hill, chief economist at Realtor.com, said investors and analysts are scrutinizing every bit of economic data, looking for clues about the Fed’s next steps and the future of the US and global economies.
The Federal Reserve does not directly determine the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates tend to track the yield on 10-year US Treasuries. As investors see or expect interest rates to rise, they often sell government bonds, which leads to higher yields and higher mortgage rates.
Over the past month, yields on the 10-year Treasury rose from 3.25% to nearly 4% before easing back to around 3.75% this week.
Hill likened the investors’ actions to a driver navigating a road in thick fog, prone to over-correcting at every turn.
“Signs that we are approaching the end of the tightening cycle — such as a sudden sharp drop in employment — tend to cause prices to slide, while rates bounce higher on signs such as strong activity in the services sector,” Hill said.
Although interest rates have fallen a bit this week, the average interest rate for a 30-year fixed-rate loan is still more than double what it was at this time last year.
A year ago, a buyer who paid 20% on a $390,000 home and financed the rest with a 30-year fixed mortgage at an average interest rate of 2.99% would get a monthly mortgage payment of $1,314, according to Freddie’s calculations. Mac.
Today, a homeowner who buys a home at the same price at an average rate of 6.66% will pay $2,005 per month in principal and interest. That’s an extra $691 each month.
With interest rates rising over the past several weeks, fewer people have been applying for mortgages, said Bob Broxsmith, president and CEO of the Mortgage Bankers Association.
He said ongoing economic uncertainty combined with the devastation of Hurricane Ian in Florida led to a 14% drop in mortgage applications last week compared to the previous week.
The MBA has also found that an increasing number of borrowers are applying for adjustable rate real estate loans, or ARMs. Applications for ARM rose to nearly 12% of all apps last week.
The average ARM rate tracked by Freddie Mac (5-year hybrid ARM indexed by Treasury) was 5.36%, a percentage point lower than the 30-year flat rate.
“While higher interest rates are necessary to tame inflation and ease the burden it places on household budgets, higher borrowing costs have led consumers to think twice about major purchases such as homes and cars,” Hill said.
With more potential buyers sitting on the sidelines, those still looking to buy have a little more breathing room.
Correction: “Today’s home shoppers have more options, but for many, higher financing costs and higher home prices mean fewer affordable options,” Hill said. “While it is difficult to budget and stick to it in this environment of soaring prices and rates, doing so is more important than ever.”
An earlier version of this story missed the number of weeks high mortgage rates. Prices rose for six consecutive weeks before falling this week.