30-year fixed-rate mortgages averaged 5.89% in the week ended September 8, up from 5.66% the previous week, according to Freddie Mac. That’s significantly higher than this time last year when it was 2.88%.
After starting the year at 3.22%, mortgage rates rose sharply during the first half of the year, hitting 5.81% in mid-June. But since then, concerns about the economy and the Federal Reserve’s mission to fight inflation have made them more volatile.
“Mortgage rates are rising again as the market continues to manage the prospect of more aggressive monetary policy to combat rising inflation,” said Sam Khater, chief economist at Freddie Mac.
Prices have fallen in July and early August as recession fears persist. But comments from Federal Reserve Chair Jerome Powell at the central bank’s annual meeting in Jackson Hole in August refocused investors’ attention on the Fed’s fight against inflation, pushing interest rates higher.
This week, investors are looking for the release of the Fed’s Beige Book, which provides a regional pulse on the US economy and an indicator of what may happen to interest rates at the Fed’s meeting in late September. Wednesday’s release indicated continued price gains in all twelve Fed districts, although there was a moderate rate of gain in these nine districts, Jones said.
“This could be an early sign of a decline in inflation, which will precede slowing rate hikes,” said Hannah Jones, economic data analyst for Realtor.com.
The Federal Reserve doesn’t set the interest rates borrowers pay on mortgages directly, but its actions affect them. Mortgage rates tend to follow the 10-year US Treasury bond. When investors see or anticipate an increase in interest rates, they often sell government bonds, which sends higher yields and with it, mortgage interest rates.
Market slows amid affordability challenges
As mortgage rates have moved higher and home prices remain near record highs, many homebuyers are delaying their search.
A year ago, a buyer who placed 20% on a home for a median price of $390,000 and financed the remainder with a 30-year fixed-rate mortgage with an average interest rate of 2.88% had a monthly mortgage payment of $1,295, according to calculations. from Freddie Mac.
Currently, a homeowner who buys a home for the same price at an average rate of 5.89% will pay $1,849 in principal and interest a month. That’s $554 more every month.
Applications for mortgages fell last week, as 30-year fixed rates moved back to their June highs, said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association.
Tariffs aren’t going down again anytime soon, Fratantoni said, but a strong job market should ensure people still want to buy homes.
“There is no sign of a rebound in buying applications yet, but a strong job market and an increase in housing inventories should lead to increased buying activity.”
While mortgage rates have increased, the range of prices offered has also increased, according to Freddie Mac. That means that borrowers can benefit from shopping around for better rates.
Borrowers can save an average of $1,500 over the life of the loan by getting one additional rate offer and an average of about $3,000 if they get five offers, according to research by Freddie Mac.