Mortgage rates surged higher yet again this week on the heels of the Federal Reserve’s latest rate hike, according to Freddie Mac. The average interest rate on a 30-year fixed mortgage is now 6.29%, smashing last week’s 14-year record high by more than a quarter-point. Mortgage applicants are also faced with higher upfront costs by spending more money on discount points to lower their rates. Here are the current mortgage interest rates, as of Sept. 22:
- 30-year fixed: 6.29% with 0.9 point (up from 6.02% a week ago, up from 2.88% a year ago).
- 15-year fixed: 5.44% with 1.0 point (up from 5.21% a week ago, up from 2.15% a year ago).
- 5/1-year adjustable: 4.97% with 0.4 point (up from 4.93% a week ago, up from 2.43% a year ago).
“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. Impacted by higher rates, house prices are softening, and home sales have decreased. But despite this decrease in sales, the number of homes for sale remains well below normal levels.”
– Sam Khater, Freddie Mac’s chief economist, in a Sept. 22 statement
Conflicting data points have become the norm in this topsy-turvy housing market. Case in point: Although interest rates are spiraling higher, mortgage applications increased last week for the first time since early August, according to the Mortgage Bankers Association. Even more confounding, the industry group expects this trend to continue, says MBA president and CEO Bob Broeksmit.
“MBA expects homebuyer demand to return, but with rates double what they were last year, the typical mortgage applicant’s monthly payment is $456 more than in January,” Broeksmit says.
But 6% mortgage rates aren’t the only hurdle for prospective homebuyers, who are still squeezed by limited housing inventory mentioned by Khater. Today’s homeowners have little incentive to sell while they’re paying down a mortgage with a sub-3% interest rate. This will further constrict inventory in the months to come, which may keep home prices inflated still despite rising mortgage rates.
Indicator of the Week: Luxury Homes Are Going Out of Fashion
Not even the most affluent homebuyers are immune to the challenges in today’s real estate market. Luxury-home sales have plummeted in recent months due to higher interest rates and widespread economic uncertainty, according to a new report from real estate company Redfin.
Sales of luxury homes, defined as those in the top 5% of an area’s market value, fell by 28% annually during the three months ending in August. This marks the largest drop in demand since Redfin began collecting this data 10 years ago.
The slowdown is accelerated in regions with a high cost of living, including many California metros in the Bay Area and beyond. Luxury-home sales were slashed by half or more in Oakland (64%), San Jose (60%), San Diego (55%) and San Francisco (50%) – as well as Miami (56%), Seattle (52%) and Las Vegas (50%).
“High-end-house hunters are getting sticker shock when they see the impact of rising mortgage rates on paper,” says Redfin’s chief economist Daryl Fairweather in the report. “For a luxury buyer, a higher interest rate can equate to a monthly housing bill that’s thousands of dollars more expensive.”
Fairweather estimates that buyers who were in the market for a home worth $1.5 million last year when interest rates were at record lows may need to lower their purchase budget to $800,000 in today’s rate environment. Meanwhile, though the median sales price for high-end homes in the U.S. rose by 10.5% year over year for three months to the end of August, to just over $1 million, the increase was only about half of that for the same period last year. For shame! If I could afford pearls, I would be clutching them.
Jokes aside, it’s difficult to sympathize with the nation’s luxury real estate developers and their dwindling clientele – when meanwhile, first-time buyers are struggling to find even a modest home within their price range. In this new era of higher interest rates and widespread housing affordability challenges, perhaps it’s time for homebuilders to switch their focus to building more starter houses rather than gaudy McMansions.