Homebuyers aren’t buying and homebuilders aren’t building in the face of untamed mortgage rates

'Unhealthy and unsustainable': Home buyers aren't buying and home builders aren't building in the face of runaway mortgage rates

‘Unhealthy and unsustainable’: Home buyers aren’t buying and home builders aren’t building in the face of runaway mortgage rates

US mortgage rates rose again this week on falling demand for home loans, according to a pair of widely followed reports.

Buyers and sellers are becoming more nervous as the average 30-year fixed mortgage rate, now more than double what it was at the beginning of the year, is approaching 7%.

Homebuilders are also losing confidence in the housing market amid rising rates, which one industry leader calls “unhealthy and unsustainable.”

“High mortgage rates approaching 7% have significantly weakened demand, particularly for potential first-time and first-generation homebuyers,” Jerry Konter, president of the National Association of Home Builders, said this week.

“Policymakers need to address this worsening housing affordability crisis.”

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30-year fixed-rate mortgages

The average rate on a 30-year fixed mortgage hit 6.94% this week, up from 6.92% the week before, mortgage finance giant Freddie Mac reported Thursday. A year ago at this time, the 30-year rate averaged 3.09%.

While the latest rate increase was more muted than in previous weeks, borrowing costs are still at a 20-year high and getting worse.

“The 30-year fixed-rate mortgage is still just shy of 7% and is negatively affecting the housing market in the form of declining demand,” says Sam Khater, chief economist at Freddie Mac.

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“In addition, homebuilder confidence is down to half what it was just six months ago and construction, particularly single-family homebuilding, continues to slow.”

15-year fixed-rate mortgages

The rate on a 15-year fixed mortgage is averaging 6.23%, up from 6.09% last week, Freddie Mac says. A year ago right now, the 15-year rate averaged 2.33% .

Since then, buyers have lost significant purchasing power and many have had to adjust their budgets or put their searches on hold.

Faced with fewer buyers, sellers can no longer make all the decisions.

“Among recently sold properties that were on the market for more than a month, sellers had to lower prices by 12% on average,” says Nadia Evangelou, senior economist at the National Association of Realtors.

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5 year adjustable rate mortgage

The increasingly popular five-year adjustable-rate mortgage (ARM) averaged 5.71% this week, down from 5.81% the previous week.

A year ago at this time, these adjustable mortgages averaged 2.54%.

This week’s rate drop is likely to further boost demand for the five-year ARM, which comes with a fixed rate for the first five years and then adjusts up or down based on a benchmark like the preferential rate.

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Buyers have been buying adjustable-rate mortgages at a rate not seen since the Great Recession, betting they’ll have a chance to refinance a lower fixed-rate mortgage before their ARM adjusts.

Mortgage rates could be in a ‘new normal’

Rates have been rising steadily this year amid the Federal Reserve’s actions to rein in decades-high inflation, despite the pain it is causing consumers.

Today’s rates could be considered “the new normal,” says Evangelou.

She points out that 7% rates were typical in the mid-to-late 1990s and early 2000s. However, homeownership then was higher than it is now.

“Potential buyers today also have to deal with higher inflation,” says Evangelou. “While inflation outpaces wage growth, the typical family needs to stretch their budget and spend more than 25% of their income on their mortgage payment.

“Including other expenses such as mortgage insurance, homeowners insurance, taxes and property maintenance costs, the costs of purchasing a home exceed 30% of a typical family’s income.”

mortgage applications this week

Mortgage applications fell 4.5% week over week, according to the latest report from the Mortgage Bankers Association (MBA).

“The speed and level at which rates have risen this year has greatly reduced refinancing activity and exacerbated existing affordability challenges in the shopping market,” says Joel Kan, vice president and deputy chief economist at the MBA. .

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“Residential housing activity ranging from home construction to home sales has trended downwards coinciding with rising rates.”

Applications to refinance existing loans fell 7% from the previous week and were 86% lower than a year ago. The share of refinancing in mortgage activity fell to 28.3%, down from 29% the previous week.

Mortgage applications to buy homes are down 4% this week, down 38% from the same week a year ago.

“With fees at these high levels, ARM’s share increased to 12.8% of all requests, which was the highest share since March 2008,” says Kan.

“ARM loans continue to be a viable option for borrowers who are still trying to find ways to lower their monthly payments.”

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


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