Articles

October 12, 2023

By: Melissa Dittmann Tracey

Borrowing costs continue to hover near a 23-year high.

For the fifth consecutive week, mortgage rates pushed upward, hammering home buyers’ budgets. The 30-year fixed-rate mortgage averaged 7.57% this week, Freddie Mac reports.

“Mortgage rates rose as ongoing market and geopolitical uncertainty continues to increase,” says Sam Khater, Freddie Mac’s chief economist. “The housing market remains fraught with significant affordability constraints.”

Mortgage applications for home purchases are now at a 30-year low. Applications are nearly 20% lower than a year ago. Home buyers are being forced to revisit what they can afford as surging financing costs and rising home prices force some to hold off on their purchase plans. 

This week’s rate average of 7.57% equates to a monthly mortgage payment of $2,253 on a median-priced $400,000 home, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. Once mortgage rates eventually drop—which NAR is largely predicting will happen sometime next year—“substantial pent-up demand” in the housing market will be unleashed, she adds.

‘ARM’-ing Up

To help offset the higher borrowing costs, more home buyers are taking out adjustable-rate mortgages, which tend to offer lower introductory, shorter-term fixed rates that later reset after, typically, five or 10 years. The level of ARM applications jumped by 15% week over week, according to the Mortgage Bankers Association. ARM applications now comprise 9.2% of total mortgage applications, which is the highest since November 2022, the MBA notes.

On Thursday, the Consumer Price Index showed that in September, inflation was 3.7% higher than a year prior, about the same pace as the previous month. The CPI remains far above the Federal Reserve’s 2% target, which could prompt the Fed to raise its benchmark interest rate at its next meeting at the end of October.

NAR, joined by the National Association of Home Builders and the Mortgage Bankers Association, issued a letter this week to Fed Chairman Jerome Powell, blaming the uncertainty surrounding the Fed’s rate path for contributing to recent hikes in mortgage rates and market volatility. The groups say this has “exacerbated housing affordability and created additional disruptions for a real estate market that is already straining to adjust to a dramatic pullback in both mortgage origination and home sale volume.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 12:

30-year fixed-rate mortgages: averaged 7.57%, rising from last week’s 7.49% average. A year ago, 30-year rates averaged 6.92%.

15-year fixed-rate mortgages: averaged 6.89%, increasing from last week’s 6.78% average. Last year at this time, 15-year rates averaged 6.09%.

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