Mortgage interest rate flirts at 7%, loan applications slump

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Mortgage rates approached 7% this week in a perfect storm fear of recessionstubborn inflation, and signs of further Federal Reserve rate hikes are further dampening the outlook for the housing market, at least in the near term.

The average 30-year fixed-rate mortgage rose to 6.94% in the week ending Oct. 20. freddie macThe most popular mortgage product rose 2 basis points from last week to its highest level since April 2002. A basis point is a hundredth of a percentage point. At the same time last year, this percentage was nearly four points lower at 3.09%.

The average rate on 15-year fixed-rate mortgages was 6.23% this week, up from 6.09% last week and 2.33% a year ago.

Average 5/1 variable rate mortgages (ARMs) stood at 5.71%, down from 5.81% last week and 2.54% a year ago. As borrowing costs skyrocket, ARMs are gaining popularity because they currently have lower interest rates than fixed-rate mortgages. According to the latest data, ARM accounted for 12.8% of his total mortgage applications for the week ending Oct. 14. Mortgage Bankers Association (MBA) ReportThis is rapidly approaching a 10% increase from just 3% of all mortgage applications in January 2022.

The interest rates above do not include fees or other costs associated with obtaining a mortgage.

Related: Compare current mortgage interest rates

Mortgage rate forecasts through early 2023

Even if Home loan interest rates soar Over the past year, there have been some fluctuations in the last few months. Average 30-year fixed mortgage rates fell over the summer, falling to an average of 4.99% on August 4, according to Freddie Mac. However, interest rates have since resumed their rise.

Mortgage rates could similarly rise as the US Federal Reserve (Fed) signals further rate hikes in the coming months and possibly into 2023. While the Federal Reserve’s actions don’t directly affect mortgage rates, they do have a significant impact on its monetary policy.

Hoping to bring inflation down to the 2% benchmark, the Fed will raise the Federal Funds Rate (the rate at which two depository institutions such as banks and credit unions trade funds) five times from March 2022. I was.

However, the latest Consumer Price Index (CPI) Report It revealed that the cost of all consumer goods increased by 0.4%. That brings annual inflation to his 8.2%, the highest in 40 years, and shows that the Fed’s actions have yet to have an effect. Meanwhile, high mortgage rates and high monthly payments continue to scare the average homebuyer.

Mortgage applications fell 4.5% in the week ending Oct. 14, more than double the week before, according to the MBA. As a result, the number of weekly mortgage applications remains at his lowest since 1997. That same year, the Dow Jones Industrial Average closed above his 7,000 for the first time. Yet, despite the decline in overall loan applications, ARM loan volumes continued to grow.

MBA vice president and deputy chief economist Joel Kan said in an emailed statement: “ARM loans remain a viable option for borrowers who are still looking for ways to reduce their monthly payments.”

Related: 2022 Mortgage Rate Forecast

Where is the housing market headed?

Various indicators suggest the housing market will remain stagnant for the foreseeable future. Home prices across the country were relatively flat from August to September, but they’re still nearly 13% higher than they were a year ago, according to the latest Zillow report. Many experts expect this trend to continue in the coming months.

Related: Best Mortgage Lenders October 2022

In the latest monthly NAHB/Wells Fargo Home Market Index (HMI), homebuilder confidence in the housing market has fallen further amid this continued high inflation and rising mortgage rates.

The HMI Index is a 0-100 scale that measures the strength of the single-family home market. The survey included approximately 900 homebuilders, and a score below 50 indicates a negative outlook for US homebuilders.

The index fell 8 points from 46 to 38 between September and October. This reflects a continuing theme of declining confidence. This was the 10th straight decline since December, when the index score was 84.

NAHB Chairman Jerry Conter, a home builder and developer from Georgia, said in a press statement: Describing the lack of affordable housing affordability as an exacerbated and unsustainable situation, Konter called on policymakers to address the crisis.

But while experts expect the housing market to remain calm over the next few months, there may be some silver lining for some homebuyers.

“Many interest rate-sensitive shoppers in (A) are being sidelined,” Zillow senior economist Jeff Tucker said in an emailed statement. Since then you will find more choices and enthusiastic sellers.

But what about prospective home buyers who can’t afford to jump into the game right now? Zillow economist Nicole Bachaud uses this time to understand your credit score and how much more you can lose by the time you’re ready to buy a home. I advise to see if there is a way to improve the

“High credit scores can make a big difference in mortgage rates,” says Bachaud. “A few basis points change in today’s mortgage rates can make a big difference in monthly payments.”

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