Following another historic 75 basis point rate increase by the Fed this week, mortgage rates followed suit, rising to their highest level in 14 years, experts noted.
The 30-year fixed-rate mortgage (FRM) averaged 6.29% this week, up from 6.01% last week, according to the latest Primary Mortgage Market Survey® (PMMS®) released by Freddie Mac Thursday.
Key findings this week:
- 30-year fixed-rate mortgage averaged 6.29% with an average 0.9 point as of September 22, 2022, up from last week when it averaged 6.02%. A year ago at this time, the 30-year FRM averaged 2.88%.
- 15-year fixed-rate mortgage averaged 5.44% with an average 1.0 point, up from last week when it averaged 5.21%. A year ago at this time, the 15-year FRM averaged 2.15%.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.97% with an average 0.4 point, up from last week when it averaged 4.93%. A year ago at this time, the 5-year ARM averaged 2.43%.
What the experts are saying:
“The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield’s jump to its highest level since 2011,” said Sam Khater, Freddie Mac’s chief economist. “Impacted by higher rates, house prices are softening, and home sales have decreased. However, the number of homes for sale remains well below normal levels.”
Realtor.com® Manager of Economic Research, George Ratiu, commented:
“The Freddie Mac fixed rate for a 30-year loan surged this week hitting 6.29%—the highest level since October 2008. This builds on the upward momentum of the past 5 weeks and follows the 10-year Treasury’s ascent past the 3.5% mark. Capital markets widely anticipated the Federal Reserve’s FOMC announcement that it would continue its monetary tightening in order to tame high-riding inflation. Fed Chairman Powell remarked this week that the economy remains on a “modest growth” path, with solid job gains and low unemployment. He also highlighted this week’s surprising ramp-up in Russian forces, signaling further military actions which are expected to continue disrupting global supply chains and add upward pressure on inflation.
“The Fed’s 75 basis point rate increase will have a measurable impact on shorter term borrowing costs. Consumers can expect to see the rates on adjustable-rate mortgages, credit cards, automotive and personal loans increase in the next few weeks. In addition, the Fed’s new thresholds for balance sheet reduction went into effect on September 1 which means that the bank will allow $60 billion in Treasury assets and $35 billion of mortgage-backed securities to mature and roll-off. These actions will cause mortgage rates to continue rising until inflation shows signs of more significant moderation.
“For housing markets, higher borrowing costs are the very remedy the Fed is prescribing in order to cool demand and lower overheated prices. The monetary tightening is achieving its intended purpose, with sales of existing homes down for seven consecutive months and August sale prices down 6% from their June peak. While sale prices were still higher than a year ago, the growth moderated into single digits, a clear sign that the exponential growth of the past several years has slowed.
“The buyer of a median-priced home, at today’s rate and using a fixed 30-year mortgage, is weighing a monthly payment that is about $900 per month higher than a year ago, which adds more than $10,000 to their yearly financing burden. For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today’s housing market remains highly unaffordable. In many locations, price cuts may be the only viable option to restore housing balance and affordability,” Ratiu concluded.
Nadia Evangelou, NAR senior economist and director of forecasting, commented:
“Mortgage rates surged this week as the Federal Reserve raised short-term interest rates by another three-quarters of a percentage point. According to Freddie Mac, the 30-year fixed mortgage rate rose to 6.29% from 6.02% the previous week. As a result, the monthly mortgage payment for a $400,000 loan is about $2,470 compared to $1,660 a year ago. Rising mortgage rates typically lead to lower mobility rates over time. Owners may be locked into their existing homes as mortgage rates rise, and the 3% rates from last year may not be back anytime soon. While the nation is suffering from a severe housing shortage, lower mobility can make housing inventory even tighter and cause home prices to continue to escalate. However, homeowners should consider that they have already accumulated substantial equity in the last couple of years. The median-priced home is worth about $80,000 more than in 2020 and $200,000 more than in 2012. In the meantime, homes will continue to appreciate as prices are not expected to drop due to the low housing supply. Thus, having positive equity in one’s home may ease the effects of rising mortgage rates on mobility.”
