Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Rates for home loans jumped this week, continuing the up-and-down pattern seen for months now. What’s more, home shoppers are showing signs they are losing interest as a result of rising mortgage costs and home prices.
The 30-year, fixed-rate mortgage averaged 5.55% for the week ending August 25, up from 5.13% in the previous week, according to Freddie Mac. Last year at this time, the popular mortgage product averaged 2.87%.
The fixed rate on a 15-year mortgage averaged 4.85%, versus 4.55% last week. A year ago, it averaged 2.17%.
Meanwhile, the 5/1 adjustable-rate mortgage (ARM) averaged 4.36%, down from 4.39% last week but up compared to 2.42% a year ago. With lower rates than those on fixed-rate mortgages, ARMs have become more popular this year.
Those rates don’t include fees and other costs associated with obtaining home loans.
Related: Compare Current Mortgage Rates
Where Will Mortgage Rates Go Next?
Rates have been on a roller coaster ride all summer as buyers, sellers, Realtors and lenders try to adapt to the sudden housing market pivot in mid-May, when home sales started dropping after shoppers were exhausted by a spike in rates and record-high home prices.
Mortgage rates are “quite volatile in 2022,” Freddie’s deputy chief economist, Len Kiefer, wrote in an August 11 Tweet. The 42 basis-point jump in mortgage rates this week was the second-largest weekly move this year. A basis point is one one-hundredth of a percentage point.
Kiefer noted that rates this year have had some of the largest weekly swings since the financial crisis of 2008. To put this into perspective, the 30-year, fixed-mortgage rate ranged from 2.65% to 3.18% in 2021. By April this year, rates catapulted to 5% and reached as high as 5.81% late June—more than double the lows seen last year.
As rates continue to bounce, home shoppers are backing out of the market. Mortgage applications, which fell 1.2% for the week ending August 19, remain stuck near 22-year lows, according to the Mortgage Bankers Association (MBA).
While mortgage rates have settled a bit from the summer highs, many housing-market experts say the bobbing pattern seen lately will continue for some time. The economics team at Fannie Mae project the 30-year, fixed-rate mortgage to average 5% for the year compared to the current average of 4.73%.
Homebuyer Hesitancy Might Help Balance Overheated Market
In Sacramento, California, sales activity has dropped by nearly one-third since the start of the summer, says appraiser Ryan Lundquist of Lundquist Appraisal Company. He describes home shoppers in his market as having a wait-and-see mentality, though it might be a good thing.
“It’s almost like the market has found a little bit of balance,” he says. But “we need time to see how things play out.”
It’s much the same in housing markets across the country. Pending home sales fell for the second consecutive month in July, at a 1% dip compared to the previous month, according to the National Association of Realtors (NAR). Still, that was a slight improvement from the 8.6% drop in pending sales from May to June.
Considering the higher home prices and mortgage rates this year, monthly mortgage costs are now 54% higher in June than they were a year ago—and that’s including a 20% down payment, according to NAR. A typical home mortgage payment was $1,944 in June, or $679 more per month than last year. And that kind of spike should give home shoppers on a budget pause, some housing experts say.
“There are so many variables in being a homeowner, like property taxes and repairs, that if $100 is going to make a dent in your budget, you probably shouldn’t be buying a house,” says Danielle Riley, who runs the Better Homes and Gardens Real Estate Prosperity brokerage in Rochester, New York.
In fact, Riley says both buyers and sellers need to take a deep breath after recent years when buyers got “spoiled” by abnormally low interest rates, and sellers were slapping any price on their property and receiving multiple offers. However, for shoppers prepared, both financially and mentally, Riley says now is as good a time as any. The buyer herd has been thinned out slightly, and a few more properties might appear on the market.
Still, “we are in very strange territory,” Riley concludes.