Mortgage rates rose to the highest level in eight months, with the 30-year fixed-rate mortgage (FRM) averaging 6.96% for the week ending July 13.
Mortgage rates have inched up each of the past three weeks, and the 6.96% 30-year FRM is significantly higher than the 5.51% average a year ago, according to Freddie Mac’s Primary Mortgage Market Survey.
“Incoming data suggests that inflation is softening, falling to its lowest annual rate in more than two years,” says Freddie Mac chief economist Sam Khater. “However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand.”
Rising interest rates, coupled with rising prices in the resale market, have strained affordability for prospective buyers. According to research from Redfin, mortgage rates rising to their highest level since November 2022 has brought the typical home buyer’s monthly payment to a near-record-high level of $2,627. A prospective buyer with a $3,000 monthly budget has lost approximately $30,000 in purchasing power since February, according to Redfin.
At the same time mortgage rates have increased, prices have also risen despite relatively low demand due to limited inventory. With many homeowners locked in at interest rates that are significantly lower than the current average rate, resale listings are down 27% year over year, the largest drop since the start of the pandemic, according to Redfin. Additionally, the total number of homes on the market is 14% lower than March 2022.
“Because elevated mortgage rates are responsible for both of today’s major home buying challenges—high monthly housing payments and low inventory—any decline is welcome news for buyers,” says Redfin economic research lead Chen Zhao. “But even though rates will come down slightly, they’ll likely remain well above 6% until the Fed sees several more months of inflation readings closer to their target.”
The combination of rising rates, rising prices, and limited resale inventory has given home builders the upper hand in the housing market. Many home builders are able to offer incentives to prospective buyers, including mortgage rate buydowns, funds toward closing costs, or flex dollars, to help overcome affordability challenges.
During the most recent week tracked by the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey, activity increased 0.9% sequentially from the prior week. The seasonally adjusted purchase index increased 2% from the prior week for the week ending July 7, according to the MBA.
“Purchase applications increased, but remained at a very low level and are 26% lower than the same week last year,” says Joel Kan, MBA’s vice president and deputy chief economist. “The rise in purchase activity was driven by increases in both FHA and VA purchase applications.. The refinance index dropped to its lowest level since early June, as demand for rate/term and cash-out refinances remains extremely low with mortgage rates over 7%.”
