Mortgage rates have soared to strikingly high levels. By late September, the average rate on a 30-year home loan exceeded 7.5 percent for the first time since November 2000, according to Bankrate data.
As October unfolds, experts predict rates won’t deviate much from this elevated point. Mortgage rates surpassed 7 percent faster than anticipated. Starting September with an average of 7.42 percent for a 30-year loan, they rose further to 7.55 percent by the end of the month, based on Bankrate’s weekly national survey of lenders.
For a 30-year loan at this rate, borrowers would be paying approximately $702 per month for every $100,000 borrowed. At the current median national price of $407,100, this translates to around $2,775 per month, assuming a 3 percent down payment.
Initially, experts anticipated rates might fall to 5 percent this year. However, at its September meeting, the Federal Reserve chose not to increase its policy rate but signaled no plans to cut rates in the near future. This led to a surge in 10-year Treasury yields, which are closely tied to 30-year mortgage rates.
“The Fed’s current mentality seems to be ‘higher for longer’,” says Scott Haymore, head of Capital Markets and Mortgage Pricing at TD Bank. “They’ve postponed any rate decreases until Q2 2024.”
While the Fed doesn’t directly control mortgage rates, its policy decisions set the tone for borrowing costs. Economists generally agree that the pandemic-era 3 percent rates are a thing of the past. The question now is how much higher they’ll climb.
“The biggest risk to mortgage rates is a widespread souring of sentiment for Treasurys — a low-probability but extremely high-impact event,” notes Greg McBride, chief financial analyst for Bankrate. “Absent that, October will likely bring renewed concerns about a weakening economy and stressed consumers, which will pull mortgage rates back somewhat, but not enough to drop below the 7 percent threshold.”
While the Mortgage Bankers Association (MBA) predicts rates may drop to 6.3 percent by the end of 2023, Haymore of TD Bank foresees little change in rates in the immediate future, asserting, “I think over the remainder of the year, we’ll be within a quarter point of where we are now. I don’t think we’ll see 8 percent.”
However, Lawrence Yun, chief economist at the National Association of Realtors, believes hitting the 8 percent mark in the short run is very possible.
Despite rising mortgage rates, home price appreciation remains robust, and listings are still selling swiftly. As the peak of the home buying season wanes, buyers are grappling with the decision of whether to accept a higher rate with the hope of refinancing later or, perhaps more frustratingly, wait it out.
If your goal is to close by the end of 2023, it’s advised not to delay and to consider a rate lock carefully.
Rates surpassing 7 percent present both a psychological and financial hurdle, as pointed out by Lisa Sturtevant, chief economist at Bright MLS. She notes, “For many potential homebuyers, a mortgage rate above 7 percent simply means that the numbers do not work for them.”
Although American homeowners have shown resilience, with mortgage rates averaging 12 percent in the 1980s, it’s worth noting that home values were significantly lower then. Combining today’s higher rates with elevated home prices may signal a potential slowdown in the seemingly unstoppable housing market.
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