Average mortgage rates on 30-year fixed home loans continued their march towards 8% this week as the Treasury yield surpassed 5%. Rates have been steadily climbing for seven straight weeks, the longest consecutive increase since Spring 2022, according to Freddie Mac‘s Primary Mortgage Market Survey.
The average 30-year, fixed-rate mortgage rose to 7.79% as of Oct. 26. That’s up 16 basis points from the previous week and up 71 basis points from 7.08% a year ago, the survey showed.
HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.83% on Thursday, compared to 7.78% the previous week.
“Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory.”
Elevated rates are making a dent in the mortgage volume
As mortgage rates keep climbing, mortgage applications sank to their lowest level since 1995.
According to Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), the lack of inventory and the affordability challenges are the main culprits, steering prospective home shoppers to the sidelines.
“We expect mortgage volume to decline nearly 30% this year to $1.64 trillion, before an expected 19% rebound in 2024 as rates finally start to trend downward,” Broeksmit said in a statement.
The housing market remains resilient
However, recent home sales readings stressed the resiliency of the housing market as buyers kept shopping despite the challenging environment.
This week, new-home sales and pending-home sales posted month-over-month gains in September. However, Realtor.com Senior Economic Research Analyst Hannah Jones expects home sales activity to hover at a low level until the end of 2023.
The National Association of Realtors (NAR) also forecasts that existing-home sales will drop by 17.5% in 2023, reaching an annualized rate of 4.15 million units sold.
For mortgage rates to improve, investors will need reassurance that the Fed will pause its contractionary policy at its next meeting next week, Jones said in a statement.