Mortgage rates remain above 7% for the third week in a row

Mortgage rates fell this week, but remained above 7%, which is too high for many homebuyers.

The average interest rate on a 30-year fixed mortgage fell to 7.18% this week from 7.23% in the previous week, according to a report. Freddie Mac. This marks the third consecutive week that interest rates have exceeded 7%, the first time since April 2002.

Rising rates clash with the end of the traditional home buying season, but the environment remains a significant headwind for buyers remaining in the market and reinforces many homeowners’ decisions not to sell now.

“The impact of mortgage rates on activity right now may not be significant because activity is expected to slow,” Orvi Devongi, chief economist at Zillow, told Yahoo Finance. “The housing market is very seasonal, so it is expected to slow now and then pick up again in the spring.”

Buyer demand is still low

Buyers still in the market benefited from the somewhat weaker rate.

Mortgage application volumes for purchases increased 2% last week on a seasonally adjusted basis, compared to the previous week, according to the Mortgage Bankers Association. (MBA) Survey Found week ending August 25th.

“Treasury yields peaked early in the week and declined towards the end, which may have spurred some activity,” Joel Kahn, MBA’s deputy chief economist, said in a statement. Fixed mortgage rates tend to follow the trend of the 10-year Treasury yield.

However, Kan said demand remains subdued, with volumes down 27% from the same period last year.

Adding to the affordability concerns are home prices, which have soared on strong demand and sparse inventory.

In June, home prices rose for the fifth consecutive month, according to the Standard & Poor’s Case-Shiller National Composite Index of US home prices, which fell just 0.02% from its all-time high a year earlier.

Homeowners are hesitant

Mortgage rates are also responsible for the shortage of homes for sale.

Most homeowners have a mortgage rate that is well below the going rate. According to the Economic Analysis OfficeThe average interest rate on all mortgage debt outstanding was 3.59% in the second quarter, nearly half the rate recorded this week of 7.18%.

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“For the bulk of those who already have a mortgage, a new mortgage at current rates will incur much higher costs,” Jake Gordon, a research analyst at Bespoke Investment Group, wrote in a note following the release of the BEA’s revised data on Wednesday.

“This gives them little reason to enter the housing market and is therefore part of the reason why housing inventories are scarce,” the analyst added.

New homes to the rescue

With the resale market thin, some buyers have turned to new homes.

New construction now made up roughly 31% of the pie of inventory for sale in July, up from about 20% in the years from 2000 through the pandemic, according to analysis by Odetta Kushi, deputy chief economist at First American.

As a result, construction companies have intensified construction work and incentives. The predominant feature is paying the costs of purchasing mortgage rates to prospective buyers.

For example, some first-time buyers are getting mortgage interest rates below 6%, with builders setting aside 4% to 6% of home sale proceeds to purchase lower mortgage interest rates, according to data from John Burns Research and Consulting Offers.

“With mortgage rates hovering between the low and mid range of 7%, we can see that uncertainty about rates has a more calming effect on sales,” said Eric Finnegan, vice president of research and demographics at John Burns Research and Consulting. Yahoo Finance.

Mortgage rate projections

It remains to be seen where mortgage rates will go from here.

“Recent volatility makes it difficult to predict where interest rates will go next, but we should have a better gauge in September as the Fed determines its next steps regarding raising interest rates,” Sam Khater, chief economist at Freddie Mac, said in a statement.

The increase in interest rates is largely due to the rise in the yield on the 10-year Treasury note over the past 18 months as the Federal Reserve tries to bring inflation down to its 2% target.

Read more: What the latest federal interest rate hike plan means for mortgage and loan rates

The Federal Reserve’s preferred inflation reading rose slightly year-on-year in July, according to a government statement Thursday, reversing some of the previous month’s declines as the battle to lower inflation may be slower.

Last week, Federal Reserve Chairman Jerome Powell warned in his speech Jackson Hole speech That inflation is still very high, which indicates that the central bank is not done yet.

“Additional evidence of continued above-trend growth could jeopardize further progress in inflation and could call for further monetary policy tightening,” Powell said, also noting that home prices are still rising, even after 11 interest rate hikes.

“In addition, after slowing sharply over the past 18 months, the housing sector is showing signs of rebounding again.”

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Danny Romero is Yahoo’s Finance Correspondent. Follow her on Twitter @daniromerotv.

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