Mortgage rates continued their climb, nearing 8%, but buyers could still find value if they shop around for the best deal and bulk up their down payment, according to Freddie Mac.
The average 30-year fixed-rate mortgage increased to 7.63% for the week ending Oct. 19, according to Freddie Mac's latest Primary Mortgage Market Survey. That's an increase from the previous week when it averaged 7.57%. A year ago, the 30-year fixed-rate mortgage averaged 6.94%.
The average rate for a 15-year mortgage was 6.92%, up from 6.89% last week and up from 6.23% last year.
"Mortgage rates continued to approach eight percent this week, further impacting affordability," Freddie Mac's Chief Economist Sam Khater said. "In this environment, it's important that borrowers shop around with multiple lenders for the best mortgage rate."
Khater said equally important was putting down a sizable down payment to help buyers get the best deal. Homeowners struggling to save for a down payment can turn to assistance programs to help pay this cost. Freddie Mac launched DPA One® this week, a tool designed to help lenders and homebuyers identify and take advantage of down payment assistance programs nationwide.
"With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance," Khater said.
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This year is likely to end with roughly 4.1 million existing home sales nationwide, the fewest since the housing bubble burst in 2008 after the subprime mortgage crisis, according to a report by Redfin. Along with a high mortgage rate, low inventory has also contributed to the drop in home sales. There are 14% fewer homes for sale than a year ago as homeowners stay put to hold onto relatively low rates. But new listings have risen slightly this fall, giving buyers a slight reprieve.
"Buyers have been in a bind all year," Redfin's Economic Research Lead Chen Zhao said. "High mortgage rates and still-high prices are making it harder than ever to afford a home, shutting many young people out of homeownership and causing homeowners to reevaluate whether 2023 is the right time to move. Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low.
"The last time home sales were this low was during the Great Recession," Zhao continued. "At that time, tough economic conditions and slow demand pushed home prices down 30% year over year in some parts of the country, creating an opportunity for first-timers to snatch up starter homes–but this time, there's no deal to be had."
However, sales of newly built homes are doing better than existing home sales. Sales of U.S. new-construction homes increased 1.5% year over year in September and prices dropped about 4%, according to Redfin's data.
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EXTREME WEATHER IMPACTING HOW BUYERS SHOP FOR HOMES: ZILLOW
Mike Fratantoni, the Mortgage Bankers Association's (MBA) chief economist and senior vice president, said at the MBA Annual Conference in Philadelphia this week that he did not expect the Federal Reserve would raise interest rates in November. Fratantoni said there was a minimal chance they would do so in December. He also anticipated that the central bank would cut interest rates three times in 2024.
The 10-year treasury rate, which reached a new high of 4.8% recently, is also expected to start reversing course and drop below 4% by the end of the year and into a neutral rate within the 3.5% range, Fratantoni said. That's good news for mortgage rates, which should begin trending down over the next two years.
"This is the bottom of the cycle," Fratantoni said.
"Our view is that the Fed's done and they're going to stick at this 5.25% to 5.5% fund rate," Fratantoni said. "This does run counter to their suggestion at their last meeting in September, where they put out projections saying median members still think one more hike, but if you listen to the speeches that they've given the last couple of weeks, even some of the more hawkish members are saying long end of the curve has increased so much that's doing our work for us and we probably don't need to hike anymore right now."
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