LOS ANGELES — Sales of previously occupied U.S. homes in September fell for the fourth month in a row, grinding to their slowest pace in more than a decade as prospective homebuyers grapple with surging mortgage rates and a near historic-low level of properties on the market.
Existing home sales fell 2% last month from August to a seasonally adjusted annual rate of 3.96 million, the National Association of Realtors said Thursday. That’s just above the 3.9 million unit pace that economists were expecting, according to FactSet. But it’s the slowest sales pace since October 2010, when the market was still choked by foreclosures following the housing bust several years earlier.
Sales sank 15.4% compared with the same month last year and are down 21% through the first nine months of the year versus the same period in 2022.
Despite the housing market slump, home prices kept climbing versus a year ago. The national median sales price rose 2.8% from September last year to $394,300. It slipped 3.1% from August.
“Clearly, the story of limited inventory and rising and rising mortgage rates continues to hinder the home sales market,” said Lawrence Yun, the National Association of Realtors’ chief economist.
Yun also said he expects mortgage rates will ease by next spring.
“I think this is the top,” he said. “Maybe we’ll have a few months of very difficult sales because of this high interest rate, but things should be improving next year.”
The weekly average rate on a 30-year mortgage moved above 7% in August, when many of the home sales that were finalized in September would have gone under contract. It has remained above that threshold since, surging this week to 7.63%, the highest level since 2000, according to mortgage buyer Freddie Mac.
Challenges for first-time homebuyers
High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already out of reach for many Americans. They also discourage homeowners who locked in rock-bottom rates two years ago from selling.
Mortgage rates have been climbing along with the 10-year Treasury yield, which lenders use as a guide to pricing loans. Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Fed does with interest rates can influence rates on home loans.
The central bank has already pulled its main interest rate to the highest level since 2001 in hopes of extinguishing high inflation, and has indicated it may cut rates by less next year than earlier expected. The threat of higher rates for longer pushed Treasury yields to their highest levels in more than a decade.
While surging mortgage rates have shut out many prospective buyers, a chronic shortage of homes for sale continues to keep the market competitive, especially for the most affordable homes.
Homes sold last month typically within just 21 days after hitting the market, and about 26% of homes sold for more than their list price, the National Association of Realtors said.
All told, there were 1.13 million homes on the market by the end of last month, up 2.7% from August, but down 8.1% from September last year, the group said. That amounts to just a 3.4-month supply, going by the current sales pace. In a more balanced market between buyers and sellers, there is a four- to five-month supply.
The combination of higher mortgage rates and rising prices has particularly hurt first-time homebuyers who don’t have any home equity to put toward their down payment. They accounted for just 27% of all homes sold last month. Historically, it was not unusual for them to make up 40% of sales.
Meanwhile, house hunters who can afford to bypass financing and pay in cash are taking up a bigger share of the market. Last month, all-cash deals accounted for 29% of all home sales, the National Association of Realtors said. Typically, all-cash transactions tend to represent about 20% of sales.
The last time all-cash transactions made up as big a slice of home sales? During the foreclosure crisis years that followed the late-2000s housing slump.
The Mortgage Bankers Association (MBA), the Community Home Lenders of America (CHLA), and the Manufactured Housing Institute (MHI) submitted a joint letter advocating for more mortgage financing options for manufactured homes to the U.S. Department of Agriculture (USDA).
The letter, sent specifically to USDA’s Rural Housing Service (RHS), addresses a proposed rule aiming to expand financing options for manufactured home buyers and supports three key changes it would make.
The proposed rule was published in the Federal Register in August, and had its comment period extended to Oct. 31 earlier this month.
USDA’s RHS proposes key changes for manufactured home financing
The proposal intends to allow the USDA “to give borrowers increased purchase options within a competitive market and increase adequate housing,” alongside enhancing customer experiences within the single-family housing loan program.
The associations lauded the RHS for three new recommendations, including an update to current regulatory language to meet ownership requirements for energy-efficient manufactured and modular home financing.
A second change recommends removing administrative requirements from the regulations for the review and approval of applications from manufactured housing dealers for direct loans.
Finally, RHS recommends revising the definition of “manufactured home” in the regulations to remove references to RHS Thermal Performance standards for direct loans.
“MHI, MBA, and CHLA are interested in working with RHS to explore the causes and solutions for RHS manufactured home loans so significantly trailing the ratio of manufactured home loans in the single-family home markets,” said Scott Olson, executive director of CHLA, in a statement.
Manufactured homes could help solve affordability woes
In their letter, the associations committed to expanding financing options for manufactured housing to help address challenges consumers are facing from steep housing costs, low inventory levels and rising mortgage rates.
“In 2022, the price for an average manufactured home was $127,250, while the average price of site-built homes was around $413,000,” the letter said. “And, the average income of a manufactured home buyer was about $35,000, while the average income of a site-built home buyer was over $100,000.”
The RHS’ most common manufactured home loan option is the Guaranteed Loan Program (GLP), which guaranteed more than 71,000 loans in fiscal year 2022 and more than 37,000 loans in fiscal year 2023. However, manufactured homes make up a very small share of the total figures, the associations pointed out.
“Unfortunately, the RHS GLP guaranteed only 146 manufactured homes in 2022 and 177 manufactured homes in 2023,” the letter stated.
“Manufactured home loans constituted only a miniscule portion of RHS guaranteed loans – 0.2% of RHS guaranteed loans in 2022 and 0.5% of RHS guaranteed loans in 2023 – even though manufactured homes consistently make up around 10% of new single-family home starts.”
While the associations signal general support for the proposed rule in the Federal Register, they also recognize that the proposed changes are not fundamental.
“MHI, MBA, and CHLA do not consider these actions ‘game changers’ – but they are constructive, and we commend RHS for proposing them,” the letter reads. “MHI, MBA and CHLA would also like to work with you to identify other potential impediments to the ability of RHS direct and guaranteed loans to achieve their full potential with regard to financing manufactured home loans.”
The U.S. Department of Housing and Urban Development (HUD) is also turning its attention toward the needs of rural areas recently. HUD created proposals to expand broadband internet access to a greater number of rural communities.
The 30-year fixed mortgage rate this week climbed to 8%, reaching that level for the first time since 2000, according to Mortgage News Daily.
The milestone arrives after months of rate increases. As recently as last April, the 30-year fixed mortgage rate stood below 5%, Mortgage News Daily data shows.
An aggressive series of interest rate hikes by the Federal Reserve since last year has pushed up the 10-year Treasury bond yield, which loosely tracks with long-term mortgage rates.
The Fed has increased interest rates to fight elevated inflation, attempting to slash price hikes by slowing the economy and choking off demand.
While inflation has fallen significantly from a peak of about 9% last summer, price increases remain more than a percentage point higher than the Fed’s inflation target.
The persistence of elevated inflation has prompted the Fed to espouse a policy of holding interest rates at high levels for a prolonged period, which in turn has increased the 10-year Treasury yield and put upward pressure on mortgage rates.
Mortgage rates have increased for five consecutive weeks, according to data released by Freddie Mac last Thursday.
Major housing industry groups voiced “profound concern” about rising mortgage rates in a letter last week that urged the Federal Reserve to stop hiking its benchmark interest rate.
“The speed and magnitude of these [mortgage] rate increases, and resulting dislocation in our industry, is painful and unprecedented,” wrote the real estate groups, among them the National Association of Realtors and the National Association of Home Builders.
High mortgage rates have dramatically slowed the housing market, since homebuyers have balked at the stiff borrowing costs, and home sellers have opted to stay put with mortgages that lock them into comparatively low rates.
Mortgage applications have fallen to their lowest level since 1996, the Mortgage Brokers Association said earlier this month.
Sales of previously owned homes, meanwhile, plummeted more than 15% in August compared to a year ago, according to the National Association of Realtors. The slowdown has coincided with a sharp rise in costs for potential homebuyers.
When the Fed initiated the rise in bond yields with its first rate hike of the current series, in March of 2022, the average 30-year fixed mortgage rate stood at just 4.42%, Mortgage News Daily data shows.
Each percentage point increase in a mortgage rate can add thousands or even tens of thousands in additional costs each year, depending on the price of the house, according to Rocket Mortgage.
Speaking at a press conference in Washington, D.C., last month, Fed Chair Jerome Powell acknowledged the continued effect on mortgages of rising interest rates, noting then that activity in the housing market “remains well below levels of a year ago, largely reflecting higher mortgage rates.”
The Fed expects to raise rates one more time this year, according to projections released last month. The central bank plans to make its next rate-hike decision in early November.
Between rising mortgage rates and soaring loan production costs this year, many lenders and brokerage leaders are reducing headcount to preserve their bottom line.
As a result, many mortgage and real estate professionals may find themselves checking out LinkedIn, whether to search for a new position or make connections in anticipation of the future.
No matter your position, networking is a crucial skill.
“Whether you’re a recruiter that relies solely on daily calls and emails to make connections or someone in a sales role that utilizes networking as a way to grow their business, it’s useful to understand how to approach each outreach to ensure you’re presenting yourself in the best light,” said Tracy Chongling, producing branch manager at Supreme Lending.
Chongling often receives calls and messages from people looking to connect with her, but often finds the initial contacts very “cold and generic, almost robotic.”
“Obviously I would not expect an individual to build an instant relationship or rapport on the first meeting; however, the ‘canned’ messages and templates being used really show that there is no real interest in me as an individual,” she said.
“I have received several emails and social media messages with a salutation addressed to someone else — if that doesn’t scream copy and paste, I don’t know what does.”
Chongling shared some strategies for smarter outreach and networking for those looking to make connections.
Know what you’re looking for
The first thing to do when you’re looking to network is to know what you’re looking to accomplish by making new connections.
For example, if you’re a recruiter, you would want to know what each job entails and look for individuals with those skill sets. Or if you work in mortgages or real estate, you may be looking to grow your book of business with potential homebuyers, sellers or new referral partners.
“The key to any outreach is purpose,” Chongling said. “What purpose do you have when reaching out? And what purpose can you bring to the person you are reaching out to?”
Do your research
Once you know what you’re looking for, prepare for outreach by researching the person you want to connect with.
Chongling said she often receives calls where the caller brings up the company she was at previously when she’s been at her new company for a year.
“If you even looked me up as a whole, it shows my new company name, but you didn’t do that,” she said. “You just saw my name, maybe my production numbers, and ran with it. You didn’t even take the time to see who I am.”
Research allows you to better understand who it is you’re hoping to connect with and shows that person that they are important enough to prepare to speak with.
Social media can be a great way to see a bit more about a person ahead of time, including their personality, interests, work history and even family life.
“It helps put the human aspect into the networking attempt,” Chongling said. “If you are connected on social media, maybe add something about a recent post they made or include a clip of an article they wrote.”
Be authentic
One thing that’s lacking in networking is authenticity, Chongling said.
“One of the easiest ways that people can build lasting relationships through networking is to understand that every interaction is a chance to get to know one another better,” she said. “Don’t approach networking as a chore or a job — think of it as a way to connect with like-minded individuals that could help open doors down the road or even turn into friendships.”
You can show authentic interest by asking open-ended questions, listening intently, learning how you can bring value to each other and being honest.
“Remember that just like everything in life, long-lasting professional relationships are built on trust and a level of comfort,” Chongling said.
Be present
It may sound obvious, but being present in every interaction is key to networking successfully. In this fast-paced environment, everyone is focused on numbers and instant gratification.
Slowing down to actually focus on the conversation and even picking up the phone or meeting in person can make a big difference.
“Hearing someone’s voice, you can tell sometimes if they’re preoccupied,” Chongling said. “I would say, ‘Smile and dial.’ I think that that impacts people a little bit more.”
Be persistent
The final piece of successful networking is to follow through and be persistent. Real estate and mortgages are not businesses of one-time communication and that’s it — rejection is part of the job. But so is following up.
“You never know, when you network with the right people, who you may cross paths with again later down the road,” Chongling said. “I don’t bother people, but I know three to five years down the road, someone’s situation may change.
“If I treated them fairly and showed them that I cared about who they were and I got to know them on a personal level, they’re more inclined probably to reach out to me.”
Ultimately, even if someone isn’t ready to build a relationship or transact with you right then, they may be later. How you treat them in every moment matters both in the present, but for the future.
Improving your networking skills is a way to not only form important working relationships but also gives you a step up the next time you need to find a job.
“There’s a lot of staff that are making their exit from the mortgage business,” Chongling said. “I think it’s a great time for really skilled networkers and recruiters to get up there and really try to find a way to show their value proposition to people.”
In addition to discussing Zillow’s financial results and the continual evolution of its Housing Super App vision on its third quarter earnings call, CEO Rich Barton and Zillow executives took time to address the elephant in the room: the verdict of the Sitzer/Burnett commission lawsuit.
While the industry has yet to find out what Judge Stephen Bough’s injunction will say and the three defendants, the National Association of Realtors, Keller Williams and HomeServices of America, have vowed to appeal the decision, Barton believes his firm will thrive regardless the outcome.
In his remarks about the suit, Barton said Zillow is a strong supporter of free, fair and transparent access to real estate information, independent representation, and transparent and negotiable agent commissions.
“From where we stand it seems clear that these principles are in the best interest of mover consumers, agents and the industry as a whole,” Barton said. “We expect industry changes resulting from this lawsuit or ones like it will involve commission transparency and negotiability provisions similar to those seen in several of the settlement the plaintiffs entered into with other real estate franchisors in advance of the trial.”
Barton also told listeners that Zillow believes complete disruption to the existence of buyer’s agents is improbable, as the firm believes it is important for buyers to have someone looking after their interests in the homebuyer transaction. However, if buyer’s agency does disappear, Zillow is considering models where the U.S. market transitions to one where one or two large listing portals offer pay-to-play inclusion on a digital listings marketplace.
“In this scenario, Zillow would be an odds on favorite to become the leading digital listings marketplace, given our brand, traffic, engagement and our unique focus on solving movers real pain points,” Barton said.
Despite what Barton believes would be an advantage for his firm, he said Zillow is not advocating for this to happen.
“We believe the pay-to-play marketplace is a step backwards for consumers and the industry as a whole and we very much like our position and growth plan in a market structure the continually evolves towards our principles of access, independence and transparency,” he said.
Zillow’s financial results
Despite a slower residential housing market environment caused by rising mortgage rates and low housing inventory, Zillow Group still managed to record an annual increase in revenue in the third quarter of 2023.
The real estate behemoth recorded $496 million in revenue, an increase of 3% year over year. The firm’s residential sector was responsible for $392 million of the overall revenue. The sector’s revenue for the quarter was down 3% annually, which Zillow executives were pleased with given the macro environment.
Zillow was also pleased with the performance of its mortgage sector, Zillow Home Loans, which reported an 88% year-over-year increase in purchase loan origination volume for the quarter. Even with this massive increase, Zillow Home Loans still recorded an 8% annual decline in mortgage revenue to just $24 million.
The firm’s mixed bag of revenue results garnered Zillow a net loss of $28 million for the quarter, which represents an improvement over the $53 million net loss it reported in Q3 2022.
“Today we are focused on delivering the Housing Super App, a tech enabled end-to-end platform with products and services that make it easier for people to move,” Barton told investors and analysts listening to the firm’s Q3 2023 earnings call Wednesday evening. “You’ve heard me say many times that 2023 is crucial for Zillow. It’s a year of execution as we prepare to scale in 2024 and 2025. We are very pleased with what we’ve accomplished today.”
While much of the call was given over to discussion of the Sitzer/Burnett suit, to which Zillow is not a party, none of the call featured discussions of the REX Real Estate false advertising lawsuit, in which Zillow, the only defendant, emerged triumphantly less than a month ago.
Originally filed by REX in March 2021, against Zillow and NAR, the lawsuit alleged that changes made to Zillow’s website “unfairly hides certain listings, shrinking their exposure and diminishing competition among real estate brokers.”
Despite the verdict, it does not appear that Zillow’s legal battle with REX is over. On Tuesday, the now defunct discount brokerage, filed a motion seeking a new trial.
In the motion, REX claimed that during the initial trial the court “gave an improper and case dispositive affirmative defense instruction on REX’s claim under the Washington Consumer Protection Act.”
REX claims that this enabled Zillow to “improperly escape liability for knowingly creating a deceptive and unfair web site by simply convincing the jury that it benefitted from doing so.”
What a terrible, horrible, no good time this is for trying to buy a home.
The housing market has almost slammed to a halt this fall, due to a one-two punch of record home prices and 30-year mortgage rates that have just touched 8%.
In recent months we’ve met with frustrated homebuyers like Nicole Bouchard, who had to lower her buying budget.
“The cost of the house is still inflated,” she said. “And with rising mortgage rates, we had to look at what would we be able to afford.”
Others, like Carol Rayheim, gave up their hunt — at least temporarily — after being outbid several times this year.
“I kind of slowed down a bit from even looking,” a frustrated Rayheim said.
Should you wait for rates to fall?
With 30-year mortgage rates in October hitting 8% before settling down to 7.75% according to Nerdwallet, a $400,000 dollar home will cost you more than $1,000 a month more than 2 years ago.
But waiting for those rates to fall again may not be the smartest move, according to realtor Michelle Sloan of ReMax TIME.
“While you are on the sidelines waiting for those rates to come down, someone else is buying the home of your dreams,” Sloan said.
She suggests you:
Get pre-approved for 7% to 8% rate, and plan to refinance a year or two down the road.
Look at new homes, where many builders are now buying down rates, giving the buyers a lower rate than they’d find on the open market.
Consider an lower adjustable rate mortgage, or ARM, which is usually a point or two lower.
“Instead of doing a 30-year fixed rate, you can do an adjustable rate mortgage,” she said. “And then you can refinance.” Sloan also said you will face less competition this fall and winter, due to seasonal dropoff of buyers, and those high rates.
She cautions that if rates fall to 5% next spring, bidding wars will be back with a vengeance.
You have less competition right now, and should not have to bid well over asking price in most cases.
“Don’t give up,” she said. “Don’t stop looking.”
That way you don’t waste your money.
________________________
“Don’t Waste Your Money” is a registered trademark of Scripps Media, Inc. (“Scripps”).
Follow John:
For more consumer news and money saving advice, go to www.dontwasteyourmoney.com
For the first time in about 15 months, the number of homes listed for sale increased on an annual basis — albeit by a very small amount, Redfin reported.
New listings rose by 0.3% for the four weeks ended Oct. 22 compared with the same time frame one year ago; this is the first rise since July 2022.
With the 30-year fixed rate mortgage averaging close to 8% last week, many potential sellers have decided those are unlikely to decline by a significant amount anytime soon, Redfin said. Another factor might be the impact on prices.
“Some people are selling right now because they’re concerned home values will go down, though that’s definitely not a foregone conclusion,” said Ali Mafi, a Redfin agent in San Francisco, in a press release. “Others are noticing an uptick in demand and testing the waters.”
Pending home sales increased unexpectedly in September, a report from the National Association of Realtors noted.
However, those now moving to list need to be realistic about pricing. “Even though there are a few more buyers out there, this isn’t 2021,” Mafi said.
Approximately 6.8% of properties for sale reported a price drop during the four weeks ending Oct. 22, the highest share on record, Redfin claimed.
Still for the period, the median sales price was $369,975, up 3.1% over the prior year, while the median asking price rose 5.4% — the biggest increase in a year — to $384,375.
“Prices are up partly because elevated mortgage rates were hampering prices during this time last year,” the Redfin press release said.
While active listings declined 12% from one year ago, to 841,697, this is the smallest annual drop since July.
The supply of homes for sale was 3.5 months, a 0.2 percentage point gain to the highest level since February, Redfin said.
The median time a home spent on the market was 33 days, a decline of 3 days, while the share of homes sold above list price 29.8%, up from 28% in August 2022.
Warning that the housing market is contracting again as today’s mortgage rates hover near 8%, Wells Fargo economists wrote in a new analysis that rising borrowing costs “stand to tip the housing sector back into a recession.”
The “ominous” special commentary posted Thursday, according to a Wells Fargo news release, states prospects for a housing rebound are dimming as mortgage rates tighten their grip on the already sharp U.S. housing affordability issues.
Even though the economy has shown “a remarkable degree of resilience” this year — and a strong labor market along with moderating inflation has “raised hopes that the U.S. economy can avoid a recession — the same can’t be said for the real estate market. Unfortunately, not every sector of the economy has been as sturdy in the face of rising debt costs,” the Wells Fargo economic group wrote.
“After generally improving in the first half of 2023, the residential sector now appears to be contracting alongside the recent move higher in mortgage rates,” they continued. “Although mortgage rates may gradually descend once the Federal Reserve begins to ease monetary policy, financing costs are likely to remain elevated relative to recent norms.”
The commentary comes days after Goldman Sachs analysts also issued a downgraded housing forecast, predicting “higher for longer” mortgage rates will continue to squeeze home inventory and yet home prices will stay in the green, though growth will be slight as sales slow even more.
It also comes a day after the Federal Reserve Bank of Atlanta posted an update to its Home Ownership Affordability Monitor, showing housing affordability sank to a “new record low” in August due to still stubbornly high prices and rising interest rates.
In yet another month of declines, the monitor index score sank to 67.3 in August with a national median home price of $377,500, a median income of $76,621, a total median monthly payment of $2,848 and an interest rate of 7.1%. The Atlanta Fed estimated the annual total payment share of median income to be 44.6%, well over the recommended 30% of income for housing costs.
Compare that score to a score of 112.3 in November 2012, when the median home price was $197,333, median income was $52,161, and the interest rate was 3.4%.
This latest affordability reading was back in August, before interest rates inched closer to 8%, hitting that threshold last week before tipping down only slightly, according to Mortgage News Daily.
This “higher for longer” interest rate climate is likely to “not only weigh on demand, but could also constrain supply by reducing new construction and discouraging prospective sellers carrying low mortgage rates from listing their homes for sale,” Wells Fargo economists wrote.
The bank’s analysts also downgraded their home price forecast, though now they expect a “slightly softer pace of home price appreciation in the years ahead.” Because high interest rates are expected to continue to both dampen demand and constrain supply, they predict those dynamics will continue to buoy home prices slightly.
“Higher financing costs are likely to both weigh on demand and constrain supply, which will allow home prices to maintain a positive trajectory,” Wells Fargo economists wrote, predicting the S&P Case-Shiller National Home Price Index to increase 1.8% in 2023 and 2.5% in 2024.
The economic group also predicts a “downshift” in new residential construction starts, with multifamily permits already declining sharply in recent months.
“The recent drop in home builder confidence is evidence that single-family construction may begin to moderate as higher mortgage rates test builders’ ability to offer rate buy-downs to attract new buyers,” they wrote. “That noted, a structural shortfall of single-family supply will likely continue to boost new development.”
Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Mortgage rates are likely to stay at frightening levels even after the Halloween season is over. But we may finally see 30-year mortgage rates dip back below 7% next year, Fannie Mae says.
Rates eased somewhat late last week after spiking above 7.5%, but they’ve trended back up again today.
In Fannie Mae’s October housing forecast, researchers predicted that mortgage rates will end 2023 around 7.3%, and that they won’t drop below 7% until the second half of 2024. This means that mortgage affordability will likely continue to be a problem for hopeful homebuyers for the foreseeable future.
“In many ways, the housing market experienced four years of business in a two-year period between mid-2020 and mid-2022,” Doug Duncan, Fannie Mae’s senior vice president and chief economist, said in a press release. “With ongoing affordability constraints and rising mortgage rates, much of that activity has essentially been given back. We expect the higher mortgage rate environment to continue to dampen housing activity and further complicate housing affordability into 2024.”
Buyers may have more luck closer to the end of 2024, when Fannie Mae researchers believe rates could drop to 6.7%, nearly a full percentage point lower than the 2023 highs.
Mortgage Rates Today
Mortgage type
Average rate today
This information has been provided by
Zillow. See more
mortgage rates on Zillow
Real Estate on Zillow
Mortgage Refinance Rates Today
Mortgage type
Average rate today
This information has been provided by
Zillow. See more
mortgage rates on Zillow
Real Estate on Zillow
Mortgage Calculator
Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
30-Year Fixed Mortgage Rates
Last week, the average 30-year fixed mortgage rate was 7.57%, according to Freddie Mac. This is an eight-basis-point increase from the week before.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
Average 15-year mortgage rates were 6.89% last week, according to Freddie Mac data. This is a 11-basis-point increase from the previous week.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
Are Mortgage Rates Going Up?
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased significantly in 2022. But mortgage rates are expected to trend down this year.
In the last 12 months, the Consumer Price Index rose by 3.7%. As inflation comes down, mortgage rates should, too. But we’ll likely need to see price growth slow further before we see substantial drops in rates.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
How Do Fed Rate Hikes Affect Mortgages?
The Fed has been increasing the federal funds rate to try to slow economic growth and get inflation under control.
Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
As inflation comes down, mortgage rates should, too. But the Fed has indicated that it’s watching for sustained signs of slowing inflation, and it’s not going to lower rates again any time soon.
When the housing market was searing hot, buyers faced intense competition — bidding wars, cash investors, and buy/sell decisions made on rapid deadlines. Now that real estate has cooled, there are fewer homes for sale, two-decade-high interest rates, and stubbornly elevated house values.
It’s rarely easy to buy a home. And if you can find a house you love, the question becomes: Is now a good time to buy?
The 2023 housing market
Looking for the perfect time to buy? Fewer than one in five consumers surveyed by Fannie Mae in July 2023 thought that it was a good time to buy a home. Yet, timing the housing market is more complicated than timing the stock market. Which is impossible. There are few “just right” Goldilocks real estate markets.
But you’re not buying the market. You’re buying a house in a city, neighborhood, and block where you want to live. Hopefully, for quite a while.
Mortgage rates
We all know this story. Interest rates have risen — and mortgage rates are no exception. The Federal Reserve has been raising short-term interest rates for well over a year in an effort to shrink inflation — the rise in consumer prices. Not only do the Fed’s rate increases immediately lift short-term mortgage rates such as variable-rate loans, but they also tend to influence long-term mortgage rates upwards as well eventually.
And though we don’t live in a 2%-3% world these days, mortgage rates are near their 52-year historical average.
Since April 1971, the 30-year mortgage rate has averaged 7.74%, based on data collected by Freddie Mac.
Of course, that’s little comfort to homebuyers today who remember when rates were under 3% for much of 2021. Conversely, the highest rate on record was a whopping 18.63% in October 1981.
According to Zillow research, the trend of mortgage rates — whether interest rates are generally rising or falling — may influence whether existing homeowners would consider selling their existing house to move into another. With so many existing homeowners paying a much lower mortgage rate, the study found it would take rates to fall somewhere to between 4% and 5% before they would sell the home they’re in and buy another.
This rate gridlock is contributing to the lack of existing homes for sale.
Take action: Consider the interest rate strategies below until (and if) mortgage rates fall significantly lower for an opportunity to refinance.
Home values
There is a little good news, though. Higher mortgage rates have softened the real estate market, and the increase in home prices is moderating.
The rise in existing home values is slowing. Home values are lower year-over-year in almost half (23) of the 50 largest metro areas, according to a Zillow analysis.
Take action: Look for homes with price reductions where you want to live. Then negotiate even harder.
But listings for existing homes are far fewer. For more than 12 months, new listings have been down year-over-year. The number of new listings of homes for sale is down more than 20% from pre-pandemic levels, according to Realtor.com.
Take action: Consider expanding your search to more affordable areas close to your favorite neighborhood if it’s too pricey.
New home inventory is rising. Construction of new homes is showing promise of growth, according to the U.S. Census Bureau. However, builders are still wary of oversupplying the market, concerned that consumer demand could sag as potential buyers shy away from rising mortgage rates.
Take action: If you want to buy a house now, consider new construction. You may be able to choose some finishes or make an even better deal on a spec home that’s been on the market for a while.
When is a good time to buy a house?
Buying a home is more than considering macroeconomic factors. It’s an important life decision based on your personal and financial situation.
Where do you want to be in 5 years?
When you rent, the decision to move is broken down into six months, or a year or two at a time, as your lease renews. But every dollar-related detail makes a home purchase a medium- to long-term investment. Buying a house includes various costs: the down payment, closing costs, and financing fees, moving expenses, property taxes, and perhaps selling your existing place.
Homeownership requires a years-long timeline. How you make a living, your friends, family, and even community amenities all come into play.
Your income
A primary consideration: your job. Will it require a location change anytime soon, or can you live where you please? Is your income steady and all but assured?
Your credit score
One of the significant factors that will qualify you for a home loan is your credit score. It’s important to know it before applying for a mortgage.
For the most common loan, a conventional mortgage not backed by a government agency, you generally need a FICO score of 620 or better.
FHA loans can allow a credit score as low as 580 with 3.5% down. VA loans issued to qualified military service members and veterans don’t officially have a minimum credit score, though some lenders will require a FICO score of 620.
As a benchmark to where you stand, the median credit score on a new mortgage in the second quarter of 2023 was 769, according to the New York Federal Reserve.
Of course, minimum scores are the entry-level to qualifying; the higher your score, the better the loan terms you’ll be offered. Most importantly, that can mean you’ll pay a lower annual percentage rate over the life of the loan. You may also have more room to negotiate on fees.
Your current debt load
A primary financial metric lenders will use to determine your creditworthiness is your debt-to-income ratio.
Fannie Mae, a government-sponsored entity that provides liquidity to the home loan market, looks for a maximum total DTI ratio of 36% of “the borrower’s stable monthly income.” Exceptions can allow for total DTIs up to 50%, but it’s usually best to avoid working on the edges of qualification if you can.
You can calculate your DTI by dividing your total recurring monthly debt by your gross (before taxes and other deductions) monthly income.
Include debt such as monthly mortgage payments (or rent), real estate taxes, and homeowner’s insurance. Also, add any car payments, student loans, and the monthly minimum due on credit cards. Remember any personal loan payments and child support or alimony.
Do not include debt such as monthly utilities — like electricity, water, garbage, or gas bills — or car insurance, television streaming subscriptions, or cell phone bills. You can also exclude health insurance costs and miscellaneous expenses such as groceries or entertainment.
Your savings
Having a cash cushion in the form of emergency savings shows lenders that you are prepared for the unexpected. Of course, that savings account should also include …
Your down payment
A large chunk of your savings account should be dedicated to the down payment. A minimum of 3% down is required in order to qualify for a conventional loan targeted to first-time homebuyers — or ideally, 20% to avoid private mortgage insurance. Yes, zero-down options exist if you are eligible for a VA- or USDA-backed loan.
According to Realtor.com, the average down payment in the first quarter of 2023 was 13%.
4 rate-relief strategies to consider
Buying a house when interest rates are high can require some financial finesse to enhance affordability.
1. Buying discount points
Prepaying interest in order to lower your ongoing mortgage rate is called buying discount points. One point is equal to 1% of the loan amount. However, lenders sometimes add a point or two to a mortgage proposal to make their loan offer appear more enticing. But you’re actually paying for the discount with an upfront fee.
When shopping for a loan, compare loan offers with zero points. Then, you can decide whether to buy points to lower your interest rate. It is important to note that buying one point (paying 1% of the loan amount upfront) will generally reduce your interest rate by only one-quarter of a percentage point.
2. An interest rate buydown
Borrowers can lower their mortgage interest rate for the first few years at the beginning of the loan term with a buydown. Home builders, sellers, and some lenders sometimes offer an interest rate buydown to boost sales.
While you get a short-term break on the interest rate, your payments and total interest may actually be higher. It’s a strategy that requires running the numbers on the long-term benefits.
If you’re paying for the buydown, compare a mortgage both with and without a buydown. By the way, lenders will qualify you based on the permanent interest rate, not the temporary buydown rate.
3.An adjustable-rate mortgage
A mortgage product that increases in popularity whenever rates begin to rise is back: the adjustable-rate mortgage.
ARMs have a fixed interest rate for an introductory period, often five to 10 years, and then the rate changes regularly, usually once or twice a year. Tips when shopping for an ARM:
Look for an introductory rate that is lower than a fixed-rate mortgage.
Choose a term you feel comfortable with, perhaps in line with how long you plan to stay in the home.
Make sure you budget for possible increases in your monthly payment if the interest rate moves higher after the end of the introductory rate period.
4. A shorter-term mortgage
Are you more comfortable with an interest rate that never changes, even if your monthly payment is slightly higher than you’d like? Consider a shorter-term loan. Mortgages with 20- or 15-year fixed terms, as opposed to the traditional 30-year term, typically come with lower interest rates. The lower rate and shorter term combination means you’ll gain equity in your home faster, too.
Your next move
Buy smart and shop a lot. Relentlessly shop mortgage rates and lenders for the best loan offers and justified fees. Get a written preapproval from your lender, then shop for a house you can love and can afford. Your home buying competition is.
According to Zillow, when it comes to first-time buyers versus repeat buyers, first-timers are more likely to reach out to at least three lenders and three real estate agents.