Mortgage Rates Down Slightly After Several Weeks of Rising

The week ending on October 5th saw the 30-year fixed-rate mortgage averaging 6.66%, down from 6.70% the week before. This is according to Freddie Mac. 

Since the start of 2022, mortgage rates have more than doubled as the Federal Reserve continues its unprecedented hiking of interest rates to try and tame the rise of inflation. However, the uncertainty of a possible recession and the impact of the rate hikes on the economy has made mortgage rates more volatile. 

“Mortgage rates decreased slightly this week due to ongoing economic uncertainty,” said Sam Khater, Freddie Mac’s chief economist. “However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.”

According to Freddie Mac, the average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put down the 20% down payment and have excellent credit. There are many buyers though who put down less money upfront or have a credit score that isn’t too great who will pay more. 

Each piece of economic data has been scrutinized by investors and analysts alike. They are searching for clues about the Federal Reserves next steps along with the future of the U.S. and global economies. 

The interest rates borrowers pay on mortgages may not be directly set by the Fed but its actions influence them. As investors anticipate rate hikes, they often sell government bonds, which sends yields higher and mortgage rates rise. The mortgage rates tend to track the yield on 10-year Treasury bonds. For the past month, yields on 10-year Treasuries have risen from 3.25% to almost 4% then fell back to nearly 3.75 this week. 

Danielle Hale, Realtor.com’s chief economist compares investors’ actions to a driver during a dense fog, prone to over-correcting on each turn. 

“Signs that we are closer to the end of the tightening cycle – such as a surprisingly steep decline in job openings – tend to cause rates to slip, while rates bounce higher on signals like robust activity in the services sector,” said Hale.

Rates may have lowered slightly this first week of October but the average interest rate for a 30-year fixed-rate loan is still more than double what it was at this time in 2021.

Last year, a home buyer who put down 20% on a $390,000 home with the rest financed through a 30-year fixed-rate mortgage at an average interest rate of 3% had a monthly mortgage payment of a little less than $1,500.

Today, that homeowner buying the same house with an average rate of 6.66% would pay a little over $2,000 each month in principal and interest. That’s around $500 more each month. 

“While rate increases are needed to tame inflation and alleviate the burden it places on household budgets, higher borrowing costs have caused consumers to think twice about major purchases like homes and cars,” said Hale.

Those still looking to buy may have a little more breathing room.