Homebuyer demand drops as 30-year mortgage rates inch toward new high: Freddie Mac

Interest rates for the 30-year mortgage maintained an upward trajectory last week, stopping short of 7%, according to Freddie Mac. 

The average rate for a 30-year fixed-rate mortgage increased to 6.94% for the week ending Oct. 20, according to Freddie Mac's Primary Mortgage Market Survey. This was an increase from the previous week when it averaged 6.92% and remains significantly higher than last year when it was 3.09%.

Rate movements for other loan terms were mixed last week. The 15-year mortgage was 6.23%, up from 6.09% the week before and up from 2.33% last year. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) was 5.71%, down from 5.81% the week before and up from 2.54% last year.  

"The 30-year fixed-rate mortgage continues to remain just shy of seven percent and is adversely impacting the housing market in the form of declining demand," Freddie Mac chief economist Sam Khater said. "Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down." 

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Builder confidence drops over rising rates 

Rising interest rates, supply challenges and high home prices have stifled homebuilder sentiment, which fell for the 10th month in a row in October as construction activity slowed, according to the National Association of Home Builders (NAHB). 

What's more, builder confidence for single-family home construction dropped eight points in October to 38, the lowest confidence reading since August 2012, with the exception of spring 2020 amid the pandemic. Single-family housing starts for September fell 4.7% annually, landing at 892,000 units, NAHB said.

"High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers," NAHB Chairman Jerry Konter said. "This situation is unhealthy and unsustainable. Policymakers must address this worsening housing affordability crisis."

If you think you're ready to shop around for a mortgage loan, you can use the Credible marketplace to help you easily compare interest rates from multiple mortgage lenders and get prequalified in minutes.

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Higher mortgage rates keep buyers sidelined

A continued decline in home sales signals that buyers and sellers "have taken a step back to consider their best course of action given heightened mortgage rates and persistent inflation," Hannah Jones, an economic research analyst at Realtor.com, said.

Existing home sales declined 1.5% from August to September, and 23.8% from September 2021, according to the National Association of Realtors (NAR). 

Despite the weaker sales, home prices remain resilient. Last month, the median existing-home price was $384,800, up 8.4% from September 2021. 

"Demand has remained strong in affordable markets…," Jones said. "Buyers who are able to be flexible may be able to find a deal this fall by zeroing in on affordable areas or by taking advantage of the market conditions and leveraging some bargaining power as homes sit on the market longer."

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