After rising for six consecutive weeks, mortgage rates fell last week.
The 30-year fixed-rate mortgage averaged 6.66% in the week ending Oct. 5, down from 6.70% the previous week, according to Freddie Mac.
Mortgage rates have more than doubled since the start of this year as the Federal Reserve continues its unprecedented campaign of raising interest rates to rein in soaring inflation. But uncertainty about the possibility of a recession and the impact of rate hikes on the economy have made mortgage rates more volatile.
“Mortgage rates have come down slightly this week due to continued economic uncertainty,” said Sam Khater, chief economist at Freddie Mac. “However, rates remain quite high compared to just a year ago, which means housing continues to be more expensive for potential buyers.”
According to Freddie Mac, the average mortgage rate is based on a survey of conventional home purchase loans for borrowers who have a 20% stake and excellent credit. But many buyers who put less money up front or have less than perfect credit will pay more.
Investors and analysts have been scouring every piece of economic data, looking for clues about the Fed’s next steps and the future of the U.S. and global economies, said Danielle Hale, chief economist at Realtor.com.
The Fed does not directly set the interest rates that borrowers pay on mortgages, but its actions influence them. Mortgage rates tend to follow the yield of 10-year US Treasury bills. When investors see or anticipate rate hikes, they often sell government bonds, driving up yields and mortgage rates.
Over the past month, 10-year Treasury yields have risen from 3.25% to nearly 4% before falling back to around 3.75% this week.
Hale likened investor stocks to a driver navigating a road in thick fog, subject to overcorrection at every turn.
“Signs that we are closer to the end of the tightening cycle – such as a surprisingly sharp decline in job vacancies – tend to drive rates down, while rates rebound higher on signals like robust activity in the service industry,” Hale said.
Even though rates have fallen slightly this week, the average interest rate for a 30-year fixed rate loan is still more than double what it was at the same time last year.
A year ago, a buyer who staked 20% on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 2.99% had a monthly mortgage payment $1,314, as calculated by Freddie Mac.
Today, a homeowner buying a house at the same price with an average rate of 6.66% would pay $2,005 a month in principal and interest. That’s $691 more every month.
As rates have risen in recent weeks, fewer people have applied for mortgages, said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.
Continued economic uncertainty along with the devastation of Hurricane Ian in Florida led to a 14% drop in mortgage applications last week compared to the previous week, he said.
MBA has also found that a growing number of borrowers are applying for adjustable rate mortgages, or ARMs. ARM requests soared to almost 12% of all requests last week.
The average ARM rate tracked by Freddie Mac (a hybrid 5-year Treasury-linked ARM) was 5.36%, more than a full percentage point lower than the 30-year fixed rate.
“While rate hikes are needed to control inflation and ease the burden it places on household budgets, rising borrowing costs have caused consumers to think twice about major purchases like homes and cars,” Hale said.
With more potential buyers sitting on the sidelines, those still looking to buy have a bit more leeway.
Fix: “Today’s homebuyers have more choices, but for many, the rising cost of financing and rising home prices mean fewer affordable options,” Hale said. “As difficult as it can be to set and stick to a budget in this environment of rising prices and rates, it is more important than ever to do so.”
An earlier version of this story misrepresented the number of weeks mortgage rates had risen. Rates rose for six consecutive weeks before falling this week.