Mortgage rates soar above 7%, reach 22-year high: Freddie Mac
Cheaper rents may offer relief to hopeful first-time homebuyers, economist says
Mortgage rates continued to break records and could go higher, according to Freddie Mac. (iStock)
Mortgage rates hit a 22-year high this week with no signs of slowing, according to Freddie Mac.
The average 30-year fixed-rate mortgage increased to 7.23% for the week ending August 17, according to Freddie Mac's latest Primary Mortgage Market Survey. That's up from the previous week when it averaged 7.09%. A year ago, the 30-year fixed-rate mortgage averaged 5.55%.
The average rate for a 15-year mortgage was 6.55%, up from 6.46% last week and 4.85% last year.
Borrowing costs have soared because of the resilient U.S. economy, according to Freddie Mac's Chief Economist Sam Khater. While inflation has moderated since hitting a record high last summer, the labor market and other economic indicators have suggested that a fair amount of momentum remains, prompting some economists to take the risk of recession off the table for now.
For the housing market, the higher mortgage rates are likely to exacerbate the affordability challenges buyers are dealing with and slow home sales further, Khater said.
"This week, the 30-year fixed-rate mortgage reached its highest level since 2001 and indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term," Khater said. "As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall.
"However, there are slightly more new homes available, and sales of these new homes continue to rise, helping provide modest relief to the unyielding housing inventory predicament," Khater continued.
If you want to take advantage of interest rates before they potentially go up, you could consider shopping for the right mortgage or refinancing your existing one. Visit Credible to speak with a mortgage expert and get your questions answered.
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High rates drive a rise in all-cash buyers, economist says
Soaring borrowing costs are increasing the number of homebuyers making all-cash offers, according to Keeping Current Matters Chief Economist George Ratiu.
The number of buyers paying all cash to buy a home increased to 26% in July this year, according to Ratiu. Additionally, in the new home space, 7% of buyers used all cash to close on a property in the second quarter of this year, a higher share than in 2020 and 2021, Ratiu stated.
"For buyers and sellers, today's mortgage rates are presenting a significant affordability challenge," Ratiu said in a statement. "At the same time, as the data underscore, people are responding in various ways, from leveraging high home equity to downsizing budgets and relying on family for cash assistance.
"For most people, however, buying a home means borrowing money," Ratiu continued. "At today's rate, the monthly cost to purchase a home totals about $2,400, not including property taxes and insurance, a 17% increase from a year ago."
If you want to take advantage of interest rates before they potentially go up, you could consider shopping for the right mortgage or refinancing your existing one. Visit Credible to speak with a mortgage expert and get your questions answered.
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Lower rents offer some relief
Rents, on the other hand, continued to dip for a third straight month, according to a recent Realtor.com report. This could give hopeful first-time buyers some breathing room to wait out the challenging and expensive housing market, according to Reatltor.com Chief Economist Danielle Hale.
The median rent in the U.S. decreased by 1% for 0-2 bedroom properties across the top 50 metros in July, and it is doubtful the trend will reverse in 2023, according to Realtor.com.
"Renters in many areas are now spending slightly less on rent relative to their overall income, giving their budgets a little more breathing room at a time of stubborn inflation and ongoing affordability concerns," Hale said in a statement. "With our midyear forecast update noting a surge in multi-family construction and an uptick in vacancy rates, we anticipate this downward pressure on rent prices will continue, providing many renters with much-needed stability in their housing expenses.
"Given the current rental market momentum and seasonal trends, it will be very unlikely to see a new peak rent in 2023," Hale continued.
If you are ready to shop for a mortgage, you could get a better rate by looking at several lenders. Credible can help you compare interest rates from multiple mortgage lenders and choose the one with the best rate for you.
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