Rates for the 30-year mortgage dropped slightly this week, but the minor change won't be enough to stir the housing market awake, according to Freddie Mac.
The average rate for a 30-year fixed-rate mortgage declined to 6.95% for the week ending Nov. 3, according to Freddie Mac's Primary Mortgage Market Survey. This was a decrease from the previous week when it averaged 7.08% but was still significantly higher than last year when it was 3.09%.
Other loan terms also decreased this week. The 15-year mortgage was 6.29%, down from 6.36% last week and up from 2.35% last year. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) dropped to 5.95%, down from 5.96% last week and up from 2.54% last year.
"Mortgage rates continue to hover around 7%, as the dynamics of a once-hot housing market have faded considerably," Sam Khater, chief economist at Freddie Mac, said. "Unsure buyers navigating an unpredictable landscape keeps demand declining while other potential buyers remain sidelined from an affordability standpoint."
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Fed rate hike adds to housing market challenges
On Wednesday, the Federal Reserve announced that it raised rates by 75 basis points for the fourth time this year. The rate hike "will certainly inject additional lead into the heels of the housing market," Khater said.
The Fed has raised the federal funds rate six times this year as it looks to bring inflation down to its 2% target. Mortgage rates have quickly adjusted higher in response to the Fed's moves, Danielle Hale, chief economist at Realtor.com, said.
"In the last 12 weeks alone, mortgage rates have soared more than two percentage points, cutting significantly into homebuyer purchasing power and likely causing shoppers to revisit their budgets," Hale said in a statement.
The "minor recalibration" of mortgage rates is to be expected, but "higher rates are likely to stick around until inflation makes much bigger strides back toward the 2% target," Hale added.
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Mortgage rates put homes ‘out of reach’
Higher mortgage rates have made buying a home less affordable and even "significantly out of reach for many," George Ratiu, a senior economist at Realtor.com, said in a statement.
In the current rate environment, buyers of a median-priced home would have to pay nearly $1,000 more on their monthly mortgage payment than if they had bought the same house last year.
"In order for this year's buyer to have the same monthly payment as last year, given a 7% interest rate, the median home price would have to decline by 45% to about $235,000," Ratiu said.
Although home prices are cooling, they don't yet reflect the current higher mortgage rate and lower buyer demand environment, Ratiu added. The median home price dropped to $425,000 in October, down from $449,000 in June but still at an annual growth rate of 13.3%, according to Realtor.com data.
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