Mortgage Rates Hit 14-Year High at 5.89% As Sellers Begin Lowering Prices
Rates for home loans jumped to their highest level in nearly 14 years this week as home buyers continue to pull out of the market, causing some sellers to reevaluate their price points.
The 30-year, fixed-rate mortgage averaged 5.89% for the week ending September 8, up 23 basis points from 5.66% the previous week, according to Freddie Mac. A basis point is one one-hundredth of a percentage point.
This is the highest level since November 2008, surpassing some analysts’ predictions that mortgage rates had already peaked this summer. A year ago, the popular 30-year, fixed-rate mortgage averaged 2.88%.
The 15-year, fixed-rate mortgage averaged 5.16%, versus 4.98% last week. Last year at this time, they averaged 2.19%.
The average 5/1 adjustable-rate mortgage (ARM) was 4.64%, up from 4.51% last week and 2.42% a year ago.
Related: Compare Current Mortgage Rates
With lower rates than those on fixed-rate mortgages, ARMs have become more popular this year. They made up 8.5% of all mortgage applications in the most recent week, according to data from the Mortgage Bankers Association (MBA), versus 3.1% at the start of the year.
Note that these rates do not include fees and other costs associated with obtaining home loans.
What’s Ahead for Mortgage Rates?
Market participants now expect those rates to rise higher than they did a few months ago. That’s because the U.S. economy may be stronger than some had predicted, giving the Federal Reserve more latitude to raise the federal funds rate without harming the economy.
The Fed’s actions do not directly impact long-term mortgage rates, but they influence them.
“Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer,” said Mike Fratantoni, MBA chief economist, in a statement.
Applications for mortgages remain at 22-year lows, according to MBA data. Home shoppers are very sensitive to rate moves, and they face skyrocketing home prices.
Many housing-market experts think rates won’t get much higher than they are now. Freddie Mac’s economists forecast a full-year average for the 30-year, fixed-rate mortgage of 5%. In the year to date, it’s averaged 4.78%.
This suggests Americans may have to get used to rates around this level.
How is the Housing Market for Buyers Now?
Despite higher interest rates, housing conditions are much more favorable for buyers now than earlier this year.
Shoppers are pulling back, lowering the competition and opening up more inventory for those willing to stay in the market. The number of active home listings was up 27% in August compared to last year, according to Realtor.com.
The housing market is beginning to show encouraging signs for buyers: Homes are on the market longer, and some sellers are reducing their price or willing to offer small concessions, like contributing to the buyer’s closing costs, says Shannon Buss, who manages Sotheby’s International Realty brokerages in Cape Cod.
However, buyers are also more “cautious,” she says, and many more are backing out of deals. “I think all of us across the country are in a strange space now,” Buss says.
Like Buss, many housing agents nationwide say they’re finding it increasingly difficult to convince sellers not to expect the high-flying offers seen the past two years. Home sales nearly came to a halt earlier this summer, but there hasn’t been enough closings documented yet to show sellers the new pricing regime, Buss says.
“Really lean into your agent,” she says, when advising sellers to take a more modest approach when setting a listing price.
Buyers should be in constant contact with their lender and realtor as well, especially as rising rates can quickly alter the home a buyer thought they could afford just a few weeks ago.
Related: How Much House Can I Afford? Home Affordability Calculator