Latest mortgage news: 30-year rate verges on 8%

The average rate on 30-year fixed mortgages rose yet again this week, hitting 7.8 percent, up from 7.55 percent the previous week, according to Bankrate’s weekly national survey of large lenders.

The average rate on 30-year home loans last topped this level in November 2000, according to Bankrate research. That was before the Sept. 11 terror attacks led the Federal Reserve to slash interest rates, and well before the Great Recession spurred the Fed to keep rates low.

The current run-up in mortgage rates reflects a variety of factors: a resilient U.S. economy, the Fed’s ongoing war on inflation and, more recently, a sharp rise in 10-year Treasury yields, which serve as an informal benchmark for 30-year mortgage rates.

“The imbalance between the increasing supply of government bonds and the reduced demand, as the Federal Reserve and many banks have stopped buying those securities, has pushed long-term bond yields and mortgage rates to levels not seen in many years,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “Its not clear how long this dynamic continues pushing bond yields and mortgage rates higher.”

What happened to mortgage rates this week

The 30-year fixed mortgages in this week’s survey had an average total of 0.40 discount and origination points.

Over the past 52 weeks, the benchmark 30-year fixed-rate mortgage has averaged 6.84 percent. A year ago, the 30-year fixed-rate mortgage was 6.75 percent. Four weeks ago, that rate was 7.41 percent. The 30-year fixed-rate average for this week is 1.53 percentage points higher than the 52-week low of 6.27 percent.

As for other loans:

• The 15-year fixed-rate mortgage was 7.03 percent, up from 6.89 from a week ago.
• The 5/6 adjustable-rate mortgage (ARM) was 7.36 percent, up from 7.27 percent a week ago.
• The 30-year fixed-rate jumbo mortgage was 7.58 percent, up from 7.41 percent a week ago.

How mortgage rates affect home affordability

The national median family income for 2023 is $96,300, according to the U.S. Department of Housing and Urban Development, and the median price of an existing home sold in August 2023 was $407,100, according to the National Association of Realtors. Based on a 20 percent down payment and a mortgage rate of 7.80 percent, the monthly payment of $2,344 amounts to 29 percent of the typical family’s monthly income.

The sharp rise in mortgage rates has squeezed affordability and sparked a slowdown in home sales. First-time buyers are especially challenged by this market. Home prices haven’t fallen significantly, and values are unlikely to decline, given the shortage of homes for sale.

“Higher mortgage rates have a dual impact on the housing market: reducing affordability for buyers and strengthening the rate lock-in for sellers,” says Odeta Kushi, deputy chief economist at First American. “The combination of reduced affordability and increased strength of the rate lock-in effect is likely to continue to suppress home sales because you can’t buy what’s not for sale, even if you can afford it.”

Will mortgage rates go down?

Some economists see mortgage rates remaining in the 7 percent range for the time being, while others aren’t ruling out a move to 8 percent, according to Bankrate’s October 2023 mortgage rate forecast. The Mortgage Bankers Association currently forecasts the 30-year fixed rate to drop to 6.3 percent by year-end.

Economists expected to see mortgage rates decrease by the end of 2023, but the strength of the U.S. economy has thrown a wrinkle into those predictions. So has the jump in 10-year Treasury yields.

Mortgage rates are also chained to inflation, a metric the Fed has been moving to control. At its September meeting, the central bank opted to keep rates unchanged. While the Fed doesn’t directly set fixed mortgage rates, it does set the tone of the interest-rate environment — and as the central bank has boosted its policy rate from zero in early 2022 to a range of 5.25 percent to 5.5 percent now, mortgage rates have followed suit.

“Higher for longer seems to be the mentality of the Fed right now,” said Scott Haymore, head of Capital Markets and Mortgage Pricing at TD Bank, in Bankrate’s latest forecast. “They pushed out any decrease in rates until Q2 2024.”

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  Methodology

  The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent. “Lenders surveyed each week are a mix of lender types — thrifts, credit unions, commercial banks and mortgage lending companies — is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.