A 30-year fixed rate loan averages 4.99%. In the year In the week ending Aug. 4, it was down 5.3% from a week earlier, according to Freddie Mac. But this is significantly higher than last year’s 2.77 percent.
Rates rose sharply at the beginning of the year, rising to 5.81% in mid-June. But since then, economic concerns have made them more flexible.
“Mortgage rates have been volatile due to the battle between inflation and the apparent slowdown in economic growth,” said Sam Khatter, chief economist at Freddie Mac.
He said that ups and downs are expected to continue.
“High uncertainty around inflation and other factors, especially as the Federal Reserve tries to navigate the current economic climate, can make rates volatile.”
“Without clear direction, markets tend to move mortgage rates in a tight range as sharp upward pressure sets in,” he said.
In response to high inflation, the Federal Reserve raised its benchmark interest rate by 75 basis points last week, the second increase in as many months.
The Federal Reserve does not set the interest rates that borrowers pay on direct loans. Instead, mortgage rates tend to track 10-year US Treasury bonds. But they are indirectly influenced by the Fed’s efforts to tame inflation.
As for consumers, the Federal Reserve continues to spend by accumulating $16.2 trillion in household debt, according to data released this week.
“The big question for consumers is whether companies will overreact to recessionary threats and start cutting wages,” Ratiu said. “A sharp pullback in employment could have a direct impact on people’s ability to sustain spending, especially with today’s high inflation.”
Affordability remains the biggest challenge.
Buyers are finding homes at lower prices as inflation eats away at a larger portion of their incomes and rising borrowing costs reduce their purchasing power.
A year ago, a buyer who put down 20% on a $390,000 home and paid the balance with a 30-year fixed rate at an average interest rate of 2.77% had a monthly mortgage payment of $1,277, according to data from Freddie. Mac
Today, a homeowner who buys a home with an average rate of 4.99% pays $1,673 a month in principal and interest. That’s about $400 a month.
Ratiu said home sales have been declining as borrowing costs have risen, putting an affordable ceiling on many buyers. At the same time, the goods are being improved.
“This year has brought a welcome sign to the real estate markets – a reduction in prices,” said Ratiu.
But, as buyers cut back, some sellers feel they’ve missed the market’s peak and are pulling back, according to Realtor.com. Homeowners are not forced to sell in this sluggish market with high financing costs.
“As the number of new listings softens, it raises concerns that the improvement in inventory may ease as we approach the final stages of winter,” Ratiu said.