Mortgage Rate Volatility Continues As Rates Rise Again

Mortgage rates rebounded higher this week after briefly falling below 5% earlier in the month, according to Freddie Mac.

Measured over the course of this summer, interest rate trend lines look more like a rocky mountain range than a rolling hill. Average 30-year fixed rates have swung wildly, rising and falling by as much as a quarter-point per week since peaking at 5.81% in mid-June. Here are the current mortgage interest rates, as of Aug. 11:

“The 30-year fixed rate went back up to well over 5% this week, a reminder that recent volatility remains persistent. Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market. Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.”

– Sam Khater, Freddie Mac’s chief economist, in an Aug. 11 statement

Today’s interest rate volatility is fueled by mixed (and often conflicting) economic signals. Wage gains have given workers a meaningful pay bump, but inflation continues to run at a red-hot 8.5% annual pace. And while unemployment remains near historic lows, gross domestic product growth has been sluggish during the past two quarters. Even the most seasoned economists have been struggling to answer the question, “Are we in a recession yet?”

Widespread economic uncertainty will continue to impact mortgage activity in the coming months. Yet as Khater points out, home prices are still likely to rise through the end of the summer due to tight housing inventory. This may further squeeze homebuyers who are already struggling to keep up with the soaring cost of living.

Just two years ago, the median sales price of an existing single-family home was under $300,000, according to data from the National Association of Realtors. But the NAR’s latest quarterly report found that this figure has eclipsed $400,000 for the first time.

In the second quarter of 2022, existing-home sales prices rose to a median $413,500 – an increase of 14.2% from a year ago. It’s a slight slowdown from the annual growth rate of 15.4% seen in the previous quarter, although it still continues the worrisome trend of double-digit price appreciation.

The vast majority (80%) of metro areas saw double-digit home price appreciation, with many local housing markets experiencing a much higher rate of growth. Annual price gains exceeded 25% in the top 10 metros where home sales prices rose the most.

“The local job market performance and supply availability are the clear distinguishing factors driving local home price growth,” Lawrence Yun, chief economist at NAR, says in a news release. “Job growth is positive and should be applauded, but supply restraints are creating unnecessary barriers to ownership opportunities.”

Rising home prices, paired with increasing mortgage rates, have significantly impacted housing affordability, NAR reports. On a typical home with 20% down, the monthly mortgage payment increased by 32% from the previous quarter and by 50% from a year ago. And naturally, households need more money than ever before to afford a down payment.

Despite the overwhelming challenges facing homebuyers last quarter, we can still end on a positive note by looking forward. Mortgage lenders are starting to see signs of a cooling real estate market, as mentioned in last week’s column. Many buyers no longer have to bid well over asking price or waive home inspection contingencies. So it’s possible, and even probable, that home price growth will have slowed meaningfully by the time NAR releases its next quarterly report in November.