Rising mortgage rates stall housing market: Freddie Mac

Mortgage rates are nearing 8%, keeping buyers sidelined and bringing purchase activity to a near stall, according to Freddie Mac.

The average 30-year fixed-rate mortgage increased to 7.79% for the week ending Oct. 26, according to Freddie Mac's latest Primary Mortgage Market Survey. That's an increase from the previous week when it averaged 7.63%. A year ago, the 30-year fixed-rate mortgage averaged 7.08%. 

The average rate for a 15-year mortgage was 7.03%, up from 6.92% last week and up from 6.36% last year.

Mortgage rates are influenced by movements in interest rates and the 10-year Treasury, which climbed above 5% this week. 

"For the seventh week in a row, mortgage rates continued to climb toward 8%, resulting in the longest consecutive rise since the Spring of 2022," Freddie Mac Chief Economist Sam Khater said. "Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers. 

"Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory."

Borrowers quoted on the high end of this week's range are likely already seeing rates beyond the 8% threshold, according to Realtor.com Senior Economic Research Analyst Hannah Jones. 

"The milestone of 8%+ mortgage rates, like 5% treasury yields, emphasizes the financial headwinds facing borrowers in today's market," Jones said in a statement. "For mortgage rates to improve considerably, investors will need to see that economic growth is slowing, which would suggest that inflation is making progress towards 2% and that the Fed can pause, and eventually pivot, their contractionary policy."

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Affordability challenges and too few homes for sale are keeping many prospective buyers on the sidelines. Still, new home sales jumped 12.3% month-over-month in September as buyers looked to lock in a mortgage before rates climbed any higher, according to Jones.

Forty-six percent of consumers said they expect mortgage rates to climb higher in the next 12 months, according to a recent Fannie Mae survey. This has helped push new home sales in September up from roughly 5% to 20% for the month and to more than 60% for the year, Jones said. Affordable new home sales also ticked up in the month, suggesting that builders are responding to demand for lower-priced homes. 

"The existing home market still suffers from low inventory as many current homeowners choose not to list their home for sale, opting out of forfeiting their lower-rate mortgage for a loan at today's rate," Jones said. "Existing home sales fell to a decade-plus low in September, and competition over scarce inventory pushed prices higher year-over-year. "

If you want to take advantage of interest rates before they potentially go up, you could consider shopping for the right mortgage or refinancing your existing one. Visit Credible to speak with a mortgage expert and get your questions answered.

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The Federal Reserve has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% in a bid to slow the economy and lower soaring inflation. Despite the restrictive stance, the latest economic growth readings show that Gross Domestic Product (GDP) in the third quarter of 2023 increased at more than twice the rate of growth in the previous quarter.

This continued growth may spark concern in some corners that the Fed could raise interest rates again. The consensus, however, is that interest rate hikes will not likely happen again this year. Still, solid economic growth supports the narrative that the Federal Funds Rate will remain higher for longer.

"The mortgage industry, like any other sector, reacts to broader economic signals," A&D Mortgage CEO Max Slyusarchuk said in a statement. "If the Federal Reserve decides to increase rates further, especially with the housing market already experiencing the challenges of high borrowing rates, it's likely we'll see mortgage rates climb."

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