While the fall usually provides aspiring buyers with opportunities to enter the housing market, high mortgage rates are getting in the way for many this season.
Key points:
- Mortgage purchase and refinance applications dropped significantly as 30-year rates jumped to the highest levels in nearly three years.
- Pending home sales have fallen while contract cancellations and price cuts are on the rise.
- Inventory is climbing, but a ceiling may be inevitable as a lack of equity growth makes it tougher for sellers to put their homes on the market.
The recent surge in mortgage rates has significantly slowed housing market activity in a period that traditionally provides the real estate industry with one last flurry before the fall and winter holidays.
Weekly average rates near 7.3%, daily rates hover around 7.6%
The mortgage rate uptick recorded at the end of September marked one of the largest one-week escalations of the past four years despite the Federal Reserve’s ongoing efforts to cool inflation. Freddie Mac’s latest weekly survey pegged the 30-year rate at 7.28%, up 25 basis points from the week before — the biggest weekly jump since October 2022 — and the highest weekly average recorded in nearly three years.
Mortgage News Daily, which uses a different set of metrics to gauge rates, has shown the 30-year rate accelerating this week, with the daily rate hitting 7.6% on Sept. 30 before dropping slightly to 7.54% in the morning on Oct. 1.
The recent surge is tied to the 10-year Treasury yield, which reached its highest levels in over 24 years amid a major sell-off as investors grew increasingly concerned about broader economic uncertainties heading into the final quarter of the year.
So what would it take to stop the surge? According to Hannah Jones, senior economist at Realtor.com, rates “would likely ease if oil prices retreat, inflation keeps cooling, or labor market data softens enough to strengthen expectations for Fed rate cuts.”
Loan activity drops off
Overall mortgage application activity dropped 6% for the week ending Sept. 25 compared to the week before, according to the Mortgage Bankers Association (MBA). The number of applications submitted by those wanting to purchase a home dropped 14% year-over-year, while refinancing applications have fallen a whopping 56%.
However, with the 30-year fixed-rate mortgage unappealing to many at the moment, the share of adjustable rate mortgages is climbing, MBA VP and Deputy Chief Economist Joel Kan noted.
A downshift is underway
The recent rise in rates comes amid the four- to six-week period in which buyers usually have the most leverage. The housing market’s peak season has passed, and sellers who are still in the market will want to move their homes before potential buyers turn their attention to the upcoming holidays.
“Buyers have more options at lower price points, but elevated mortgage rates keep homeownership out of reach for many,” Jones said.
Rising rates have had a predictable impact on other gauges…
Read More: Housing activity hits the brakes as mortgage rates surge
