February 5, 2023

Housing Affordability Dwindles With Mortgage Rates Near 7%

Mortgage rates dipped across most loan terms this week, with the average fixed interest rate on a 30-year mortgage retreating further below 7%. While rates generally fell for conventional mortgage loans, they rose slightly for FHA and VA loans.

Here are the current average mortgage rates, without discount points unless otherwise noted, as of Nov. 24:

  • 30-year fixed: 6.9% (down from 6.94% a week ago).
  • 20-year fixed: 6.79% (up from 6.77% a week ago).
  • 15-year fixed: 6.23% (down from 6.27% a week ago).
  • 10-year fixed: 6.32% (down from 6.37% a week ago).
  • 5/1 ARM: 5.46% (down from 5.56% a week ago).
  • 7/1 ARM: 5.59% (down from 5.69% a week ago).
  • 10/1 ARM: 5.92% (up from 5.86% a week ago).
  • 30-year jumbo loans: 6.91% (equivalent to 6.91% a week ago).
  • 30-year FHA loans: 6.14% with 0.07 point (up from 6.1% a week ago).
  • VA purchase loans: 6.29% with 0.05 point (up from 6.23% a week ago).

Erika Giovanetti

“Mortgage rates continued to tick down heading into the Thanksgiving holiday. In recent weeks, rates have hit above 7% only to drop by almost half a percentage point. This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points.”

— Sam Khater, Freddie Mac’s chief economist, in a Nov. 23 statement

Current volatility in the mortgage market reflects the mixed signals in the broader economy. While 30-year mortgage rates spent several weeks above 7%, interest rates dipped below that threshold in mid-November on the news that inflation may have peaked. And the Federal Reserve is widely expected to slow the pace of benchmark rate hikes in response to slowing inflation: A “substantial majority” of policymakers support slowing the pace of rate increases, according to minutes from the Fed’s November meeting.

Still, this era of tighter monetary policy from the central bank has had significant ramifications for homebuyers this year. With mortgage interest rates doubling over the course of 2022 so far, housing payments are beyond the affordability threshold for many prospective buyers.

Indicator of the Week: Mortgage Payments Eclipse $2K

Monthly payments among mortgage applicants have risen by about 46% since the start of the year – a price increase of $629 between January and October 2022, according to the Mortgage Bankers Association. The median new mortgage payment surpassed $2,000 for the first time since the MBA began collecting this data in 2009.

“Prospective homebuyers continued to feel the effects of higher mortgage rates in October, with the 70-basis-point jump in rates leading to the typical monthly mortgage payment rising to a new survey high of $2,012,” Edward Seiler, associate vice president at MBA, says in a statement.

Erika Giovanetti

There are few things today’s homebuyers can do to offset the impact of near-7% mortgage rates. Some might consider an adjustable-rate mortgage to save on monthly payments during the short term. Others – particularly current homeowners – may choose to suspend their home search, sitting on a 3% mortgage rate they locked in during the past two years.

Another cost-cutting option for buyers is to simply look at cheaper houses, whether they opt for a smaller home or one that’s located in an area with a lower cost of living. MBA data shows that, although monthly payments have risen meaningfully, the median loan amount has actually decreased.

“Higher mortgage rates are also squeezing the purchasing power of prospective buyers,” Seiler says. “The median loan amount last month decreased to $295,000 – the lowest level since January 2021.”

For the remainder of 2022, conditions won’t likely improve for homebuyers, Seiler adds. “Weakening affordability and increased economic uncertainty are expected to slow homebuying activity in the final two months of the year,” Seiler says. Even with home sales prices starting to cool down, they’d have to fall much further to offset the financial impact of high mortgage rates.

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