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As mortgage rates soar, applications plummet Swapna Venugopal Ramaswamy USA TODAY
Homebuyers’ purchasing power diminished further in August as mortgage rates continued their upward march, averaging 7.2% over the past two weeks, the highest level since 2001, according to new data released by Freddie Mac. Mortgage rates climbed to the highest levels in more than two decades the week before, averaging 7.09%. A year ago at this time, the 30-year FRM averaged 5.5%. “Indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short term,” said Sam Khater, Freddie Mac’s chief economist. “As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall.” Khater said a slight increase in new home availability should “provide modest relief to the unyielding housing inventory predicament.” The Federal Reserve’s interest rate hikes to fi ght infl ation have driven the yield on the 10-year treasury bond, a benchmark for pricing an average 30year loan, causing mortgage rates to climb, experts say. The last time the 30-year fi xed-rate mortgage exceeded 7% was November 2022. Mortgage applications decreased 4% from one week earlier, and purchase activity fell to a 28-year low, according to data from the Mortgage Bankers Association for the week ending Aug. 18. “Applications for home purchase mortgages dropped to their lowest level since April 1995 as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power,” said Joel Kan, MBA’s vice president and deputy chief economist. “Low housing supply is also keeping home prices high in many markets, adding to the aff ordability hurdles buyers are facing.”
Why are home sales falling? Higher interest rates can add hundreds of dollars to a monthly mortgage payment. More than 85% of current mortgage holders are locked into a mortgage interest rate less than 5%, which makes these homeowners reluctant to trade in their homes for another at today’s high rates. Sales of existing homes fell 2.2% from June to a seasonally adjusted annual rate of 4.07 million in July, according to the National Association of Realtors. Year-over-year, sales were down by 17% (from 4.88 million in July 2022). Total housing inventory at the end of July was 1.11 million, down 15% from one year ago. Unsold inventory sits at a 3.3month supply at the current sales pace, which is considered to indicate a seller’s market. The median existing-home price for all housing types in July was $406,700, an increase of 1.9% from July 2022 ($399,000).
Sales of new homes going up Sales of newly built single-family homes in July increased 4 .4 % to a 714 ,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in July was up 31.5% from a year ago. “New home sales were solid in July because of an ongoing housing defi cit in the U.S. and a lack of resales stemming from many homeowners electing to stay put to preserve their low mortgage rates,” said Alicia Huey, chairman of the National Association of Home Builders. New single-family home inventory in
Sales of newly built single-family homes in July increased 4.4% to a 714,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. RICARDO B. BRAZZIELL/AUSTIN AMERICAN-STATESMAN FILE
Average long-term mortgage rate falls a bit from 20-plus-year high Alex Veiga ASSOCIATED PRESS
LOS ANGELES – The average long-term U.S. mortgage rate slipped after climbing for fi ve consecutive weeks to a more than 20-year high, a modest relief for would-be homebuyers challenged by rising home prices and a thin inventory of homes on the market. Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan fell to 7.18% from 7.23% last week. A year ago, the rate averaged 5.66%. The average rate is now the lowest it’s been in two weeks, but remains above 7%. High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can aff ord in a market already unaff ordable to many Americans. They also discourage homeowners who locked in low rates two years ago from selling. The average rate on 15-year fi xed-rate mortgages, popular with those refi nancing their homes, was 6.55%, unchanged from last week. A year ago, it averaged 4 .98%, Freddie Mac said. Mortgage rates climbed for much of August along with the 10-year Treasury yield, which is used by lenders to price rates on mortgages and other loans. The yield, which last week neared its highest level since 2007, rose sharply as bond traders reacted to reports showing the U.S. economy remains remarkably resilient. That’s stoked worries that the Federal Reserve will conclude that it needs to keep interest rates higher for longer in order to crush infl ation. But this week, the 10-year Treasury yield has been falling following economic reports showing consumer confi dence tumbled in August and job openings fell to the lowest level since March 2021. On Thursday, the government reported that its personal consumption and expenditures report, a measure of infl ation closely tracked by the Feder-
July was 4 37,000, up 4 .8% compared with a year ago. That represents a 7.3month supply at the current building pace. A six-month supply is considered balanced. Right now, of the total home inventory, both new and resale homes, 31% of homes available for sale are newly built. The median new home sale price in July was $436,700, down 9% compared with a year ago. Pricing is down because of builder incentives and a shift toward slightly smaller homes, according to the
The average long-term mortgage rate is now the lowest it’s been in two weeks, but still remains above 7%. GENE J. PUSKAR/AP FILE
al Reserve, remained low in July. The central bank held rates steady at its last meeting and is expected to do the same in September. “Recent volatility makes it diffi cult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes,” said Sam Khater, Freddie Mac’s chief economist. High infl ation drove the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, lifting the fed funds rate to the highest level in 22 years. While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. Investors’ expectations for future infl ation, global demand for U.S. Treasurys and what the Fed does with interest rates can infl uence rates on home loans. The average rate on a 30-year mortgage remains more than double what it was two years ago, when it was 2.87%.
builders association. Although existing homes account for 85% of U.S. sales, it’s time for consumers to take a closer look at new home sales, according to Jeff Taylor, member of the Mortgage Bankers Association and Founder of Mphasis Digital Risk, which does due diligence on mortgages for the largest banks and lenders. Taylor notes that builders are off ering to buy down mortgage rates by as much as 1 to 1.5 points, which can save buyers thousands or even tens of thou-
sands of dollars, depending on the price of the house and the type of mortgage. “Most of the large, national home builders have their own mortgage companies, so they have greater fl exibility than traditional lenders,” Taylor said. “Of course, those mortgages − and the benefi ts that go with them − are designed for their own customers.” Other builders are off ering closing cost credits and upgrades, including adding in free rooms or even a swimming pool, he says.
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