Mortgage rates are on their way back up after breaking a six-week streak of declines heading into the new year.
According to Freddie Mac, the average rate on the 30-year fixed mortgage increased to 6.42% from 6.27% the previous week. This marks the first rise in mortgage rates since mid-November, when the Federal Reserve signaled that it would reduce its interest rate hikes due to a decrease in inflation. As a result, mortgage rates began to decline.
“The housing market remains in the doldrums with declining sales, inventory, and prices,” said Sam Khater, Freddie Mac’s chief economist. “The declines in sales and deceleration in home prices began swiftly earlier in 2022, but have moderated more recently. While the intensity of weakness is moderating, the market continues to decline and forward-leading indicators suggest housing will remain weak throughout the winter.”
According to the Mortgage Bankers Association’s latest survey of applications, demand for purchase mortgages remained subdued in the week leading up to Christmas. Purchase activity decreased by 3% compared to the previous week and was 36% lower than the same week the previous year.
“This is a particularly slow time of the year for home buying, so it is not surprising that purchase applications did not move much in response to lower mortgage rates,” said Mike Fratantoni, MBA’s senior vice president and chief economist in a statement.
Unfortunately for buyers, affordability is still a pressing issue.
According to George Ratiu, senior economist and manager of economic research at Realtor.com, the monthly mortgage payment for the typical home, priced at $416,000, is approximately $2,100 without taxes or insurance. This is a 61% increase from the previous year.
“For many buyers, there is a real financial ceiling that they’ve hit and they simply can’t stretch,” Ratiu said. “In time, things will adjust. Incomes either will go up and rates may flatten, home prices will continue to come down from their peak. But in the short term, it’s obvious that many, many buyers are basically left on the sidelines.”
Seller confidence is also an ongoing issue as very few home sellers have a positive outlook going into 2023.
According to the National Association of Realtors, pending home sales decreased by 4% in November and were 37.8% lower compared to the same period the previous year. This trend was seen across the country, with double-digit declines in many regions. At the same time, existing home sales declined for 10 consecutive months in November and were 35.4% lower than the previous year.
“We had a sticker shock phenomenon this year, and so that led to cancellations of potential sales and we got more buyers backing away from applying for a loan,” Fratantoni said.
“It’s hard to anticipate the path of rates… but we expect they will trend lower next year,” Fratantoni said. “We also expect homes are going to sit on the market a little longer in 2023. There will be less bidding wars and so the whole purchasing process will be less frantic for buyers than it was in 2020 and 2021.”