Mortgage Rates Hit Another Record High As Loan Applications Slide

Mortgage Rates Hit Another Record High As Loan Applications Slide
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Mortgage rates have shot back over 7% to the identical record-high mark set in late October, keeping borrowers on the sidelines amid ongoing market fluctuations and recession fears.

The average 30-year, fixed-rate mortgage rose to 7.08% for the week ending November 10, according to Freddie Mac. Mortgage rates have made a 13 basis-point jump from last week’s average of 6.95% (a basis point is one-hundredth of a percentage point), and they’ve more than doubled since early January, when the average 30-year, fixed rate was 3.22%.

The 15-year, fixed-rate mortgage averaged 6.38% this week, up from 6.29% last week and up from 2.27% a year ago.

The average 5/1 adjustable-rate mortgage (ARM) was at 6.06%, up from 5.95% last week and from 2.53% a year ago. As borrowing costs continue to surge, ARMs remain more attractive, since they now have a lower rate than fixed-rate mortgages.

ARM applications made up 12% of all applications for mortgages during the week ending Nov. 4, a slight uptick from 11.8% the week before, according to the Mortgage Bankers Association (MBA). ARMs comprised just 3% of all mortgage applications in January 2022.

The rates above don’t include the fees called “points” or other costs associated with obtaining home loans.

Related: Compare Current Mortgage Rates

Mortgage Rates Forecast Into 2023

Mortgage rates have hit some extreme highs and lows this year, with the 30-year, fixed-rate dropping down to 4.99% on August 4, then hitting its first 20-year high of 7.08% in October. Rising rates have been due, in part, to the Federal Reserve’s aggressive strategy of hiking its federal funds rate six times this year in an effort to tamp down inflation.

Additionally, while the government’s latest inflation reading indicated that consumer prices rose less than expected in October–dipping below an annual rate of 8% for the first time since February–the nation is still grappling with near-record-high inflation.

The Fed has signaled that its tightening monetary policy will likely continue, which will indirectly impact mortgage rates. Long-term mortgage rates are directly tied to the yields on Treasury bonds, which react to the Fed’s actions and monetary policy.

Following the central bank’s November policy meeting, Fed Chair Jerome Powell “made it clear that data suggest there is still more to do, and noted that December’s projections will likely show a higher fed funds rate path than was expected in September,” says Danielle Hale, chief economist at Realtor.com, in a statement.

Most housing experts say mortgage rates will average around 5% to 6% in 2023, though some have predicted rates will go even higher.

Related: Mortgage Rates Forecast For 2022

First-time Homebuyers Face Affordability Crunch

Homebuyers have continued to react to high mortgage rates in recent months by pulling back on applying for mortgages. Though overall mortgage application volume was down in the most recent week, applications for home purchase loans edged up by 0.1%. Despite remaining relatively flat, the small increase broke a string of dips, according to the MBA.

“Purchase applications increased for the first time after six weeks of declines but remained close to 2015 lows, as homebuyers remained sidelined by higher rates and ongoing economic uncertainty,” said Joel Kan, MBA’s vice president and deputy chief economist, in a statement.

As mortgage rates remained high, refinances also continued to fall, declining to levels not seen since August 2000, said Kan.

Besides high mortgage rates, first-time homebuyers are also up against low housing supplies that are roughly half the level needed for what’s considered a balanced market. The portion of homebuyers who are first-timers has dropped to 26%, according to the National Association of Realtors (NAR). This is the lowest share since the real estate trade association began keeping track.

The age of first-time buyers also has reached a new milestone. NAR’s data shows that the average first-time homebuyer has hit the oldest age on record of 36—three years older than buyers of just one year ago.

“First-time buyers are older as a result of saving for down payments for longer periods of time or relying on a generational transfer of wealth to propel them into homeownership,” says Jessica Lautz, NAR vice president of demographics and behavioral insights, in a news release.

Where the Housing Market is Headed Into 2023

Various indicators suggest that the housing market, which reached record-high home prices earlier this year, is starting to cool. However, affordability remains out of reach for many home shoppers because of stubbornly high rates and home prices in many markets, even as home prices begin to come down.

The government’s latest consumer price index shows that shelter costs increased by 0.8% from September to October, the largest monthly climb since August 1990. The shelter index has seen a year-over-year increase of 6.9%.

“The housing market is the most interest-rate sensitive segment of the economy, and the impact rates have on homebuyers continues to evolve,” says Sam Khater, chief economist at Freddie Mac. “Home sales have declined significantly and, as we approach year-end, they are not expected to improve.”

Nonetheless, if you know you want to live in a home long term, the longer you wait to buy the less opportunity you have to build up equity in your home, says John Manning, managing broker at RE/MAX Gateway in Seattle, Washington.

“Prices are already highly negotiable, why wait to begin wealth building?” says Manning. “Even if a first home doesn’t check all the boxes, within five to 10 years, there is a high likelihood that a homeowner will have built enough equity to leverage the purchase of a better home.”

Related: Best Mortgage Lenders Of November 2022

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