In recent developments, the housing market is facing a chilling trend as mortgage rates surge, inching perilously close to the 8% mark, and driving many prospective homebuyers to step back from the market.
According to data released by Freddie Mac on Thursday, the average 30-year mortgage rate made a significant leap from 7.63% to 7.79% within the past week. Notably, this is the eleventh consecutive week where the average borrowing rate has remained above 7%, marking an uninterrupted eight-week climb.
Alternatives for Surging Rates:
To counteract the impact of these surging rates, homebuyers who still dare to venture into the market are gravitating toward incentives offered by homebuilders or opting for adjustable-rate mortgages (ARMs). However, these alternatives may face severe challenges as rates are expected to continue their upward trajectory. Hannah Jones, a senior economic research analyst at Realtor.com, observed that despite the burden of high mortgage rates and soaring home prices, recent data on new home sales indicates that buyers are resilient and finding ways to navigate the tough environment. Nonetheless, she cautions that “the milestone of 8% or more mortgage rates, akin to the 5% Treasury yields, underscores the financial challenges confronting today’s borrowers.”
The Mortgage Bankers Association (MBA) reported a 2% decline in the volume of mortgage applications for home purchases on a seasonally adjusted basis during the previous week, a 22% year-on-year decrease. Joel Kan, MBA’s vice president and deputy chief economist, noted that “mortgage activity continued to stall, with applications reaching their slowest weekly pace since 1995.”
How Sustainable Is a 30-Year, 8% Mortgage Rate?
An interesting shift in the market is the increased interest in ARMs, which offer a lower initial rate. The share of ARM applications has reached 9.5% of all applications, marking the highest level since November 2022. MBA’s data reveals that the average rate for the 5/1 ARM stands at 6.99%. This particular mortgage type provides a fixed rate for the first five years, after which it adjusts annually based on a predetermined interest rate index.
Exploring More Options:
Alternatively, some homebuyers are exploring the new home market, where builders are enticing buyers with mortgage rate incentives through their affiliated lending companies. This strategy has contributed to an uptick in new home sales. In a promising development for prospective home buyers in the United States, a recent report from Redfin has revealed that the housing market is witnessing a glimmer of relief with an uptick in new property listings, marking the first positive shift in over a year.
According to the report released on Thursday, there has been a modest 0.3% increase in the number of new property listings during the four weeks leading up to October 22, as compared to the same period in the preceding year. Although the increment appears relatively minor, it holds significance as it marks the first such increase since July 2022, as reported by the online real estate platform, Redfin.
