Mortgage rates continue to climb, approaching 6 percent

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Mortgage rates continued their upward momentum this week and showed no signs of slowing as they approached the 6 percent mark, according to data released Thursday by Freddie Mac.

Fixed rate mortgage rates have been up since the beginning of the year, up more than two full percentage points. The higher borrowing costs are part of a drive by the Federal Reserve to raise interest rates as a way to cool inflation, and the repercussions in the housing market were immediate.

Just last month, there were fewer home sales, falling first-time buyers and sudden industry layoffs, signs that air may be leaking from an overheated housing market as higher rates have dented housing demand.

“Real estate is very sensitive to an increase in the mortgage rate, so higher rates will lead to lower sales and slow the housing market even more,” said Lawrence Yun, chief economist at the National Association of Realtors. “Housing is a major contributor to the US economy, and we have already seen construction companies shrink production and slow sales. Let’s hope that higher rates don’t push the US into recession.”

Housing cooling has had a chilling effect on the home lending industry. JPMorgan Chase is laying off hundreds of employees this week and rehiring hundreds more. Industry heavyweight Wells Fargo has shed more than 100 home-lending employees after revenue slumped in the first quarter. Other lenders such as Pennymac, LoanDepot and Guaranteed Rate have also reduced their workforce.

The rise in prices destabilizes real estate companies. Real estate brokerage Compass recently announced the layoff of 10 percent of its staff along with a pause in hiring and expansion. Real estate brokerage Redfin has also laid off 8 percent of its staff.

“The real estate industry is one of the most aggressive of all, so any downturn quickly leads to a jolt in businesses,” Yoon said.

The Federal Reserve is raising interest rates by the most since 1994 to fight inflation

The 30-year fixed-rate mortgage rose to 5.81 percent, compared to 5.78 percent a week ago, according to Freddie Mac. It was 3.02 percent a year ago. The average 15-year mortgage was 4.92 percent, up from 4.81 percent last week. A year ago, the ratio was 2.34%. The five-year adjustable rate was 4.41 percent, up from last week when it averaged 4.33 percent. A year ago, it was 2.53 percent.

Earlier this month, the Federal Reserve raised interest rates by three-quarters of a percentage point in an attempt to tame inflation – its largest rise since 1994. These were the third of seven hikes expected this year. Although the central bank does not set mortgage rates, its rate-fixing activity affects them indirectly.

Despite rising mortgage rates, mortgage applications rose for the second week in a row during the week ending June 12, according to the Mortgage Bankers Association (MBA).

“However, buying activity remained 10 percent lower than it was a year ago, as inventory shortages and rising mortgage rates dent demand,” Joel Kahn, associate vice president of economic and industrial forecasting at the MBA, said in a statement.

The average loan size is just over $420,000, Kahn said, well below its peak of $460,000 earlier this year, and likely a sign that home price growth is slowing.

Harrison Beecher said his potential clients who buy a home on less than $450,000 have had a “profound reaction” to the extra costs of a home loan with a 6 percent mortgage rate.

“A difference of a few hundred dollars in repayment at a higher rate has a much greater impact on buyers at the entry price point,” said Beecher, managing partner of the Coalition Properties Group with Keller Williams Capital Properties in DC. out of the market and decided to continue to rent.”

Since mortgage rates began rising in early 2022 and last week surged more than half a percentage point to their highest level since 2008, homebuyers have increasingly been feeling the pinch of the expected housing payments. However, the bottom has not completely dented the housing market. Instead, there is a slowdown in sales and demand.

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“The combination of higher interest rates, inflation and home prices means homebuyers have lost nearly 50 percent of the purchasing power they had six months ago,” said David Howell, executive vice president and chief information officer at McEnearney Associates in McLean. Virginia “With any other commodity that experienced this kind of dramatic shift, demand would go down, but that didn’t happen.”

Over the past six weeks, contracts signed in the metropolitan area have fallen by about 15 to 20 percent compared to the same period last year, “but that’s not a sharp drop,” he said.

Howell said 2021 and 2020 are two of the most unnatural real estate markets he’s ever seen. He said that today’s housing market is comparable to 2019, except for a lower number of homes for sale and higher mortgage rates.

However, there is no expectation that mortgage rates will drop in the near future, nor is there any evidence that rates will fall either, Beecher said. Rather than cutting prices overall, the pace of the rally is expected to slow, although some individual sellers are dropping their prices today if their homes don’t sell.

Caroline Sabinfeld, a real estate agent with Re/Max Realty Services in Bethesda, Maryland, said home buyers who were looking at the top of their budget when rates were 3.5 to 4 percent may face housing payments above their comfort level.

“If you don’t have to move and the payouts are too high, you might want to take a step back and wait and see what happens in the market,” Sabinfeld said.

Beecher said first-time buyers and those looking for entry-level housing need to be flexible about the location and the type of housing they buy.

What does a Fed rate hike mean for mortgages

“Your first home isn’t your forever home,” Beecher said. “It is not impossible to buy, but you may not be able to buy exactly what you want. The dynamic is that rent is not cheaper than buying now and your rent is likely to go up too.”

Hoyle said the capital’s apartment market, especially for older buildings with no outdoor space, is softer than the rest of the housing market. This may provide an opportunity for some first time buyers.

For sellers, Beacher recommends pricing their home appropriately and considering offering closing cost credits to help buyers lower the interest rate to make their payments more affordable.

“I train all of my clients to stay in the game if they have the means to buy,” Beecher said.

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