Mortgage rates rose across the board last week, according to Freddie Mac data, as the housing market continues to feel the effects of broader economic conditions.
The average 30-year fixed mortgage rate climbed to 8.01%, extending a months-long trend of increasing rates driven by Federal Reserve actions to tame inflation. Meanwhile, 15-year fixed mortgage rates also rose to 7.17%, and adjustable rate mortgages saw average rates go up to 6.93%.
Higher mortgage rates present significant affordability challenges for homebuyers. With prices still near record highs in many markets, the rising cost to finance a home is pricing many buyers out of the market entirely. This is especially true for first-time homebuyers, who often have tighter budgets.
Some buyers may look to adjustable rate mortgages for lower initial costs, but they run the risk of much higher payments down the line if rates increase further. Others may shift focus to smaller homes that require less financing. But overall, options are dwindling for buyers as rates ratchet upwards.
On the other hand, homeowners already locked into low fixed rates from earlier in the pandemic are largely insulated from the current conditions. This discrepancy between existing owners and prospective buyers is creating imbalances in the market.
As buyers pull back, home sales have declined significantly, dropping to the slowest pace since 2010 last month. Yet home prices have remained stubbornly high due to low supply, presenting a challenging situation all around.
With the Fed still actively engaged in rate hikes to fight inflation, mortgage rates are expected to keep rising in the near term. This suggests the housing affordability crunch will persist, squeezing buyers and the overall market into 2023 and beyond.
