Mortgage rates jumped to almost 7% as the housing market begins to cool in response to rising rates.
The average rate for a 30-year fixed mortgage increased as homebuyers have watched rates steadily rise over the past six months.
According to Freddie Mac, mortgage rates hit 6.7% last week, while the Mortgage Bankers Association put the rate for a 30-year fixed mortgage at around 6.52%. The Mortgage News Daily, which posts a daily average of rates, estimates that the rate for that same type of mortgage is around 6.65%.
“At this point, rates have been doing nothing but going up,” said Diane Mastay, mortgage director with Tropical Credit Union in Miramar, Florida. “In the early pandemic we were looking at the low threes, and now we are looking at almost seven. That is a huge difference in terms of payment.”
The Federal Reserve has raised the federal funds rate, or the rate at which banks lend each other money overnight, by about three percentage points since March in an effort to tamp down on rising inflation.
At times, when the federal funds rate rises, mortgage rates typically rises as well, though they are not directly related.
And mortgage rates have been on the upswing: In March, they were around 4.5%, before reaching over 5% in the summer when mortgage rates seemed to take a slight pause. Now, they have been climbing up steadily over the past six weeks.
In response, purchase applications have decreased. On a national level, purchase applications were 29% lower than they were last year. Mastay noted that they have seen a 50% decrease in volume for purchase applications at their firm compared with the year before.
“They’re making it difficult for people to qualify for a mortgage and even to buy,” she said.
It has put added pressure on buyers as they grapple with high housing prices and high rates. Some buyers have turned to adjustable mortgage rates, which have a lower starting rate, in the hopes that they can refinance later on if rates go back down, while others might want to wait and see what happens.
“It affects your buying power, no doubt,” said Ryan Greenblatt, broker with Lang Realty in Boca Raton, Florida. “It’s creating a bit of a slowdown and some areas have seen a slight price decrease.”
There are some benefits to the higher mortgage rates, however as it’s lessened competition for buyers who are still in the game. While they may be dealing with higher pricing and high rates, there are fewer buyers they have to compete with and there is now room for negotiation with sellers, added Greenblatt.
Overall, it’s likely that buyers and sellers will have to adjust to higher rates for the foreseeable future, cautioned Greenblatt.
“Six percent is historically not a high rate, it’s just relative to recent times,” he said. “I think buyers will get used to it and it will be the new normal.”
