Mortgage rates have been making headlines lately, not just for their numbers but for the broader impact they're having on the housing market. On October 24, 2024, average rates for popular mortgage types surged, with the 30-year fixed-rate mortgage rising to 6.71% for both purchases and refinancing. This marked a significant hike from the previous week, and it's leading many potential homebuyers to rethink their plans.
The recent climbing rates are seen as part of a larger pattern. Following the Federal Reserve's unexpected half-point cut to interest rates on September 18, conditions have been shaky. While many expected lower rates to cushion the housing market, turbulence created by uncertainties—such as upcoming elections—has shifted the narrative to one of caution and hesitance among buyers.
Accompanying these rising rates, the Mortgage Bankers Association reported earlier this month a 5% decline from the previous week in purchase loan applications. That's three consecutive weeks of drops. The refinancing index took an even bigger hit, plummeting 8% as borrowers turned wary amid higher borrowing costs.
Such mortgage rate fluctuations are often linked to the movements of U.S. Treasury yields. Currently, with Treasury yields hovering at their highest level since July, lenders are reacting by raising mortgage rates, adding another layer of financial strain on potential purchasers. For many, the choice to buy or refinance hinges not only on the current rates but also on how they stack up against longer-term trends. A month ago, the 30-year fixed rate was around 6.13%, but the rise to above 6.50% provides little incentive for prospective homeowners to enter the market.
And it doesn't stop there. The mortgage rates for 15-year fixed loans increased to approximately 6.01%, impacting those seeking shorter-term loans as well. Fannie Mae and Freddie Mac's set conforming loan limit stands now at $766,550, making these higher rates especially relevant for jumbo mortgage seekers—those needing loans exceeding this threshold. Rates for jumbo loans are reported to have risen to about 6.88%, presenting additional challenges for those attempting to secure financing for luxury properties.
Until recently, many were optimistic about the housing market as it appeared to show some resilience. The National Association of Realtors reported last month on increasing inventory levels, with 260,000 more homes on the market compared to last year. Still, the pace of sales is sluggish, requiring 4.3 months for buyers to absorb the current inventory. This, combined with elevated asking prices, continues to dampen enthusiasm.
Market analysts have been quick to warn, with Fitch Ratings emphasizing affordability concerns stemming from both rising rates and price levels. The sentiment is clear: until rates settle closer to 5%, sales may be less inclined to pick up barring any major changes.
Interestingly, even though buyers have become cautious, Joel Kan, the Deputy Chief Economist for the MBA, pointed out the silver lining—mortgage rates are actually over one percentage point lower than they were at this time last year, with existing rates following the trend closely. This means some buyers who left the market due to the previously exorbitant rates may still have the opportunity to pursue homeownership.
But how do these rates affect the everyday buyer? A significant difference of even half a percentage point can mean hundreds of dollars difference each month and thousands over the life of your loan. Individuals with good credit, typically around or above the 670 FICO score line, are advised to shop around as rates vary widely across lenders.
Buying power is also decreasing. With monthly payments increasing due to higher rates, some buyers find themselves forced to either dip down to less desirable homes or delay their plans altogether. Take, for example, the calculations on payments for homes with typical pricing—an increase of just one percent could yield several hundred extra dollars monthly, which is no small amount for most households.
Not dry from the rising concerns of costs, should there be hope for rate improvements? Many experts believe it's possible. Given the Federal Reserve's signals to approach future cuts cautiously, if inflation stabilizes around the 2% target, it could eventually ease mortgage rates gradually. For now, potential buyers will need to remain flexible—watchful for new developments as the political calendar leads up to the President's election.
President Joe Biden and his administration have made housing affordability and accessibility key topics leading up to this by-election. Still, the intertwined nature of fiscal policies makes drawing definitive lines challenging, as campaign discussions differ widely on practical solutions.
Finally, when evaluating whether to purchase, refinance, or wait, homebuyers would do well to bear the changes brought on by the market’s shift. Keeping informed and prepared can make all the difference, especially now as trends continue to evolve amid economic uncertainties.
The upcoming weeks will be significant as rates continue to adjust, and potential homebuyers must balance affordability with their dreams of home ownership. The market remains volatile, but many yet hold on to hope for more favorable conditions.
