Mortgage rates just fell, and home prices may ‘peak’ – but buyers hoping for free fall ‘will be disappointed’

After rising above 7% for the first time in 20 years, US mortgage rates fell again this week even as the housing market continued to reel with high borrowing costs.

Rates also fell despite the Federal Reserve announcing once again a three-quarter point increase above its trend-setting federal funds rate – a sign that inflation remains unchecked.

“It looks like (mortgage) rates have priced in some of the impact of a Fed rate hike,” Nadia Evangeliu saysSenior economist for the National Association of Realtors.

However, depending on how quickly or slowly – consumer prices and the still-frozen job market start to moderate, home loan rates could soon start to rise again.

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30-year fixed-rate mortgages

Interest rates on a 30-year fixed mortgage – America’s most popular home loan – averaged 6.95% this week, down from 7.08% a week earlier, the financial giant said. House Freddie Mac reported on Thursday.

Last year at this point, the average 30-year interest rate was 3.09%.

At today’s rates (and today’s prices), the monthly mortgage payment on a home costs $965 more on average than it did a year ago, George Ratiu saysRealtor.com senior economist.

“The dramatic spike in financing costs has effectively shrunk most buyers’ budgets,” says Ratiu.

15 year fixed rate mortgage

Rate per 15 year fixed mortgage Freddie Mac said an average of 6.29% this week, down from 6.36% last week and 2.35% a year ago.

Sales are still falling, and prices in many markets are falling as well.

Median home prices are falling in more than a third of the 100 largest US housing markets, according to research from Florida Atlantic University (FAU) and Florida International University.

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The markets with the highest declines were mainly in places that have experienced the strongest price increases: San Jose, Calif., Austin, Tx., San Francisco, Boise, Id. and Salt Lake City.

“The housing market across the country is slowing down and appears to be reaching the top of the current housing cycle,” said Ken H. Johnson, economist at FAU’s College of Business.

5-year adjustable-rate mortgage

The average interest rate on a five-year adjustable rate mortgage – aka ARM – was 5.96% this week, down only slightly from 5.96% last week.

Last year at this point, the average 5-year ARM was 2.54%.

ARMs start with a fixed interest rate that typically lasts three to 10 years. Interest rates are typically lower than rates on fixed-term mortgages for a longer term, such as 15 or 30 years.

But after the initial deadline, the rate on ARM will adjust up or down based on benchmark like Basic interest rate.

Read more: Should I wait for more housing to collapse before buying a house? 3 reasons late 2022 could be the best time to jump in

The Fed’s Impact on Mortgage Rates

The Federal Reserve does not set mortgage rates, but its federal funds rate affects a wide range of borrowing costs, including the cost of home loans.

The Fed’s recent rate hikes have hit demand across many sectors, but perhaps none other than housing.

“The housing market has been very hot for several years after the pandemic as demand increased and interest rates were low,” Fed Chairman Jerome Powell expressed at a press conference this week. “The housing market needs to return to a state of balance between supply and demand.”

From a financial stability standpoint, however, the market appears to be in a better shape than it was in the run-up to the global financial crisis, when lending standards were much looser than they were, Powell said. Currently.

“It’s a very different situation and doesn’t seem to present financial stability issues,” he said.

Where will the rate go from here?

Lisa Sturtevant, chief economist at Bright MLS, said mortgage rates could rise to 8% or more later this year or early next year if inflation proves to be difficult.

The latest data on consumer prices is due next week – and that could speak to future Fed action.

“While interest rates could be volatile in the coming weeks, homebuyers expecting a significant drop in mortgage rates will be disappointed,” Sturtevant said.

If inflation eases and the Fed eases up on steep hikes, mortgage rates could stabilize around 7 percent, she said.

Latest Forecast from Mortgage Bankers Association (MBA) shows the average 30-year fixed rate peaking in the last quarter of this year and then falling in 2023.

Mortgage applications fall for the sixth week in a row

The decline in mortgage activity continued last week, down 0.5% from the previous week, according to the latest information MBA Survey.

Specifically, mortgage applications to buy a home were down 1% from last week and down 41% from last year. Applications to refinance existing home loans are down 0.2% and 85% respectively from a year ago.

“Apart from ARM lending rates, interest rates on all other types of loans are three percentage points higher than they were a year ago,” said Joel Kan, MBA’s vice president and chief economist.

“These elevated rates continue to put pressure on both buying and refinancing activity and have added to ongoing affordability challenges impacting the broader housing market, as seen in a worsening trend in home buying and selling starts.”

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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.