For six weeks, mortgage rates have risen for six straight weeks, but last week they began to retreat.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.66% in the week ending October 5, up from 6.70% the week before.
Mortgage rates have more than doubled since the start of the year following the Federal Reserve’s unprecedented rate hike campaign.
Their decision was based on the objective of curbing rising inflation.
However, uncertainty about a possible recession and the impact of interest rate hikes on the economy affected the volatility of mortgage rates.
Sam Khater, Chief Economist at Freddie Mac, said:
“Mortgage rates decreased slightly this week due to ongoing uncertainty.”
“However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.”
According to Freddie Mac, the average mortgage rate is generally based on a survey of conventional borrowers with excellent credit who have put 20% down.
However, buyers who deposit less money upfront or have imperfect credit will have to pay more.
Danielle Hale, chief economist at Realtor.com, revealed that investors and analysts have sifted through all the economic data for clues on the Fed’s next steps.
They also want to predict the future of the United States and the global economy.
Although the Fed does not directly determine the interest rate that borrowers pay on mortgages, its actions affect interest rates.
Mortgage rates generally follow 10-year US Treasuries.
The more investors anticipate rising interest rates, the more likely they are to sell treasury bonds, causing interest rates and mortgage rates to rise.
10-year government bonds rose almost 4% from 3.25% last month before falling back to around 3.75% this week.
Danielle Hale compared investor stocks to a driver navigating the streets in fog, tending to overcorrect at every turn.
“Signs that we are closer to the end of the tightening cycle – such a surprisingly steep decline in job openings – tend to cause rates to slip, while rates bounce higher on signals like robust activity in the services sector,” Hale elaborated.
Despite this week’s low interest rates, the average interest rate for a 30-year loan remains more than double that of last October.
In 2021, buyers who put down 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% would have a monthly mortgage payment of $1,314.
Today, homeowners who buy homes at the same price at an average rate of 6.66% would have to pay $2,005 per month in principal and interest, another $691 per month.
Bob Broeksmit, president and CEO of the Mortgage Bankers Association, noted that fewer people have applied for a mortgage as rates have continued to rise in recent weeks.
According to Broeksmit, ongoing economic uncertainty, coupled with the devastation of Hurricane Ian in Florida last week, led to a 14% drop in mortgage applications from the week before.
The MBA also found that more and more borrowers are applying for adjustable rate mortgages, or ARMs.
ARM applications increased to nearly 12% of all applications last week.
Freddie Mac calculated the average rate for ARMs at 5.36%, more than a percentage point lower than the 30-year fixed rate.
“While rate increases are needed to tame inflation and alleviate the burden it places on household budgets, higher borrowing costs have caused consumers to think twice about major purchases like homes and cars,” said Hale.
The longer potential buyers sit on the sidelines, the greater the leeway for potential buyers.