U.S. Mortgage Rates Edge Higher, Hovering Above 7%: Analyzing Factors and Implications

Jeah Lorraine Adams on September 14, 2023

In the realm of U.S. mortgage rates, there is a subtle yet significant shift in the wind. Recent data from Freddie Mac reveals that mortgage rates, which have been on a two-week journey of slight declines, have finally inched upward. This marks the fifth consecutive week that these rates have stubbornly remained above the 7% threshold, a trend driven by persistent inflationary pressures. This article delves into the details of this development, shedding light on the factors at play and the potential consequences.

The Numbers Game

In the week ending September 14, the 30-year fixed-rate mortgage registered an average of 7.18%, reflecting a noticeable uptick from the previous week’s 7.12%. This significant year-over-year increase stands in stark contrast to the 6.02% rate recorded just a year ago. Freddie Mac’s Chief Economist, Sam Khater, attributes this surge to the resurgence of inflation and the underlying strength in the nation’s economy.

Mortgage Rate Determinants

A critical element in comprehending this situation is understanding how the average mortgage rate is calculated. Freddie Mac derives this figure from an extensive survey of mortgage applications, drawing data from thousands of lenders across the United States. Notably, the survey focuses on borrowers who meet specific criteria, including a 20% down payment and excellent credit.

Awaiting the Federal Reserve’s Decision

The situation takes on added complexity when we consider the Federal Reserve’s looming rate decision. Over the past month, the rate for a 30-year mortgage has remained steady, as investors hold their breath in anticipation of the Fed’s next move. The Federal Reserve has embarked on a concerted effort to combat inflation, employing a series of bold rate hikes. The latest inflation data is poised to play a pivotal role in the central bank’s forthcoming decision.

Analyzing Inflation Data

Jiayi Xu, an economist at Realtor.com, scrutinizes the inflation landscape. While August’s headline inflation numbers were influenced by surging energy prices, the core Consumer Price Index (CPI), which omits volatile food and energy components, offers a different perspective. It suggests that core inflation is trending down toward pre-pandemic levels. However, the persistently high inflation levels and a gradual deceleration rate hint at the prolonged journey to bring inflation back in line with the Fed’s 2% target.

The Fed’s Perspective on the Situation

The Federal Reserve keeps a watchful eye on the CPI, which surged by 3.7% in August compared to the previous year. Nevertheless, this particular inflation measure is projected to decline in the coming months as housing costs, also referred to as “shelter” in economic data, begin to recede. It’s important to note that there is often a time lag before such changes are reflected in the overall inflation rate.

Housing Market Dynamics

Adding another layer of complexity, housing dynamics reveal a nuanced picture. While the CPI shelter index has exhibited favorable trends, contributing to the reduction in core inflation, there is a contrasting development in the for-sale housing markets. Prices of homes for sale have experienced an upward tick, introducing an element of uncertainty into the equation.

Takeaway

As U.S. mortgage rates continue their dance above the 7% threshold, a confluence of factors, including inflationary pressures and the Federal Reserve’s rate decisions, are shaping the landscape. These developments underscore the intricate interplay of economic forces and market dynamics. Observing the trajectory of mortgage rates in the coming weeks promises to be a captivating journey for both industry experts and potential homebuyers.

Mortgage rates linger below 7% in latest report

Jeah Lorraine Adams on August 15, 2023

Mortgage — The economy has been on an inconsistent flow since the pandemic, with inflation striking a major blow in 2022. As a result, several industries have also felt the effects of the Federal Reserve’s persistent efforts to curb inflation. Although there have been moments of relief, inflation remains.

One of the most glaring issues in the economic landscape today is the increase in mortgage rates.

On Thursday, it was reported that the rates rose for the third consecutive week. However, one key takeaway from the increasing rates is that it remains under the 7% threshold.

The news

On Thursday, Freddie Mac released some new data that showed the 30-year fixed-rate mortgage averaging 6.96% in the week ending August 10. The latest update showed that it had gone higher than the 6.90% from a week earlier. In 2022, the 30-year fixed-rate mortgage had been significantly lower at 5.22%.

The Federal Reserve’s historic rate-hiking campaign has led to elevated mortgage rates, bringing home affordability to its lowest level in the past couple of decades.

People looking to buy a home will find it is more financially straining due to the added cost of financing the mortgage. In addition, homeowners who had locked in lower rates are now hesitant to sell. As a result, prospective buyers are stuck in a dilemma of having to deal with low inventory and high costs.

Since the end of May, rates have continued to rise above 6.5%. The recent average rate is on-level at a peak since November.

“There is no doubt continued high rates will prolong affordability challenges longer than expected,” said Freddie Mac.

“However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”

To elaborate, the average mortgage rate is derived from the mortgage applications Freddie Mac receives from a number of lenders across the United States. The survey covers borrowers who have excellent credit scores and put 20% down.

Employment and inflation data

After the Federal Reserve pointed out that it relied on jobs and inflation data during its July monetary policy meeting, the rate stayed elevated this week.

Markets were eager to see the July inflation report released on Thursday morning, which showed that inflation soared to 3.2% annually compared to the 3% annual increase in June. The recent update indicated that it was the first time inflation picked up since 2022. In addition, the data showed shelter costs contributing 90% of the total increase in inflation last month.

“July’s Consumer Price Index holds significant importance for the Fed’s upcoming decision,” said Realtor.com economist Jiayi Xu.

Xu added that the faster pace of price increases could fuel the Fed’s concern that inflation will continue to linger longer than expected. The Federal Reserve will also take the upcoming August employment and inflation data into consideration before the next policy meeting in September.

Furthermore, Xu noted that the latest jobs report provided mixed signals regarding the labor market as a smaller number of net new jobs were added while the unemployment rate dipped.

“While July’s jobs report itself is very unlikely to have a direct impact on the Fed’s upcoming decision, the decline to a 3.5% unemployment rate may imply that more significant slowing is needed to align with the Fed’s projected year-end rate of 4.1%,” she said.

Mortgage affordability problems persist

Keeping Current Matters chief economist George Ratiu said that borrowing costs will stay high until financial markets receive an “all clear” signal from the Federal Reserve.

Although the Fed isn’t responsible for setting the interest rates that borrowers pay directly on mortgage, they are still a prominent influence. For example, mortgage rates track the yield on 10-year US Treasuries that move based on anticipation of the Fed’s actions, what they do, and investors’ reactions.

Mortgage rates rise when Treasury yields shoot up, and they follow suit when they go down.

Ratiu said that mortgage rates are currently running higher than they should be in relation to the 10-year Treasury. He also pointed out that the spread between the 30-year fixed rate mortgage and the 10-year Treasury is around 300 basis points. The level has been scarcely seen in the past 50 years, mostly showing up during high inflation and economic turbulence.

“In the absence of the elevated risk premium and hewing closer to a historical average of 172 basis points, today’s 30-year fixed mortgage rate would be around 5.7%,” said Ratiu.

The Mortgage Bankers Association said that homebuyers are still sensitive to elevated interest rates, alluding to a drop in mortgage rates applications last week.

“Due to these higher rates, there was a significant pullback in mortgage application activity,” said MBA president and CEO Bob Broeksmit. “Both prospective buyers and sellers are feeling the squeeze of higher rates as well as low housing inventory, which has prompted a pronounced slowdown in activity this summer.”

George Ratiu said that sales of existing homes have been lagging despite real estate markets benefiting from more people getting employed and receiving improved paychecks this year.

“The challenge comes mainly from too many buyers chasing not enough available properties,” he added.

With history as his reference, Ratiu noted that mortgage rates usually cool off once inflation subsides, experiencing a six-to-eight-month lag.

Essential Tips for Getting Approved for a Mortgage

Scarlet Logan on July 24, 2023

Homeownership is a vital aspiration for most individuals. Families are grown, and memories are made on that property. A property purchase is one of the most expensive purchases you will have to make in your life. Therefore, you will probably consider a mortgage and find ways to get approved for one. There are some tips that will improve your chances of mortgage approval, as discussed in this post.

Work with an Expert

The mortgage landscape is wide, which will require you to navigate the sector to find the best options for getting the best deal. A reliable mortgage broker has been in the real estate business for quite some time. They can help you find the best residential and commercial mortgage loans that best suit your needs. They are an intermediary between a buyer and a lender or a financial institution. A mortgage broker searches for lenders and evaluates your employment and financial information as a buyer. They can facilitate this process by completing the loan paperwork.

When you are choosing a mortgage broker, be sure to consider one with a positive professional relationship with the lenders. They are committed to gathering employment verification, credit history, and documents of potential home buyers. A mortgage broker can assist a property buyer in applying for mortgage loans.

Get a Cosigner

A cosigner can be your go-to ally when your income isn’t enough to qualify you for loan approval. The affordability calculations include your cosigner’s income, which adds up to your income qualification. A cosigner’s income is considered by the bank even when the individual is not living in the house. When you are choosing a cosigner, ensure they have a stable income, good employment history, and credit history. They can also help your less-than-perfect credit compensation.

The cosigner acts as a guarantor to the financial institution by assuring them that the loan will be payable. Cosigning a mortgage loan comes with legal and financial obligations tying you, and both of you must understand. Failure to repay the loan, a cosigner is eligible to pay the full debt amount. Be sure to maintain a good credit score for your cosigner because defaulting or delayed payments will affect their credit score too.

Boost Your Credit Score

Your credit score is everything when it comes to getting a mortgage. Poor credit score will reduce your chances of getting a mortgage because you have not impressed the lenders enough that you could repay. You can boost your credit score by increasing your savings and reducing your debt. To start working on your credit score, be sure to first get a credit report to know where you stand with the score. You can get a free credit report on the federal trade commission’s website. The report lists comprehensive details such as open loans, credit history, a track record for timely payments, and credit card accounts. You can then find credit scores from their agencies and see if you qualify for a mortgage loan.

Be sure to build your credit history. Short credit history may hurt your chances of getting a mortgage approved. Open a secured credit card with a smaller credit limit. The cash amount saved in a secured card from the company must match the credit available for the card. The company’s credit card risk is eliminated through a secured card resulting in an improved chance of getting your mortgage approved.

Consider Smaller Purchases

A bigger property requires a higher amount of mortgage. Your approval for a mortgage may be challenging to get when if you cannot afford what you want to purchase. There are two options available for you, one to wait until you can afford a mortgage for a bigger house or choose a smaller house with fewer bedrooms, square footage, or bathrooms. Properties in a remote area could cost less, thus making it affordable to acquire them. You may first consider ownership in a far more country as you wait for an improvement in your financial situation. You can then trade your remote home for an ideal property in the city or your preferred neighborhood.

Shop Around For Various Lenders

The biggest mistake home buyers make is to go with the first mortgage deal they run to instead of researching other lenders. Lenders offer different interest rates and requirements for getting an approved mortgage. You can find local banks giving you better competitive interest rates. Some lenders have hidden costs that make you pay more before you complete the payment. Once you find the right lender, set a budget to determine how much you can afford, keeping in mind additional costs such as insurance, taxes, utilities, furnishings, and maintenance costs. If the property is commercial, be sure to have operational costs before you get your first income.

Lastly, follow the above tips if you are constantly worried about how you could improve your mortgage approval. In addition to the above strategies, be sure to consult your lender on what more could be done to get approved fast. Different lenders require different options. Therefore, you may get to know what the lender wants and plan your financials accordingly.

Navigating the Mortgage Application Process: Tips for Success

Jeah Lorraine Adams on June 29, 2023

Navigating the mortgage application process can seem like a daunting task. There’s so much at stake, particularly if you’re considering applying for your first home loan. Making mistakes along the way could end up costing you thousands of dollars in higher interest rates or, worse, losing out on an opportunity to purchase the property of your dreams. Fortunately, some general tips will help ensure you have all the information and paperwork necessary to apply for a mortgage loan successfully. Read on for our essential guide to navigating the process with confidence and ease.

1. Understand the Different Types of Mortgages Available

Buying a house is a significant investment, and it’s crucial to understand all your options when it comes to mortgages. Various types of mortgages are available, each with its requirements and benefits. For example, a fixed-rate mortgage means your interest stays the same throughout the loan period.

In contrast, adjustable-rate mortgages offer more flexibility but come with the risk of fluctuating interest rates. It’s essential to listen to mortgage advice for first time buyers and research different types of mortgages to find the best one for your budget and lifestyle. Also, assess your situation, such as your income, expenses, and credit score, before choosing the best mortgage type. Doing so lets you make a well-informed decision and find a mortgage that fits your needs and financial goals.

2. Collect All Necessary Documents

Gathering all the required documents for various purposes can be daunting and stressful. It can feel like a never-ending paperwork checklist, from proof of income and tax returns to bank statements and identification cards. However, being organized and proactive can make all the difference in important legal or financial transactions. A little preparation can save you time, money, and effort in the long run. So take a deep breath and start collecting all your necessary documents today.

3. Research Different Lenders

Searching for a lender can feel overwhelming, particularly when you require assistance in determining the initial steps. However, this is a crucial step in securing any car, home, or investment loan. To get the best rates and terms, you must take the time to research and compare different lenders.

Contact your bank, credit union, or an online lender for their offer. Remember to look into smaller, local lenders as well, as they may have more competitive rates and more flexible terms. Remember, a little bit of research can go a long way in helping you find the lender that’s right for you.

4. Calculate How Much You Can Afford for Your Mortgage Payment

Buying a home is an exciting milestone, but managing finances can also be stressful. One of the biggest considerations is calculating how much you can pay monthly for your mortgage. This requires considering your income, other financial commitments, and the home price you want to buy.

It’s important to be realistic and keep your budget manageable, as doing so can lead to financial strain and potentially even foreclosure. By carefully evaluating your finances and working with a trusted mortgage advisor, you can confidently determine a comfortable monthly payment that will allow you to enjoy your new home while still being financially stable.

5. Get Pre-Approved For a Loan

Making a big purchase, such as a house or a car, can be an exciting process, but it can quickly become overwhelming if you need more clarification on your finances. That’s where getting pre-approved for a loan can help. Going through the pre-approval process with a lender, you’ll know exactly how much you can borrow and your budget for your big purchase. This will give you peace of mind and save you time and money since you won’t be looking at homes or cars outside your price range. Take the first step towards your dream purchase and get pre-approved for a loan today.

6. Consider Getting Help from a Qualified Mortgage Specialist

Securing a mortgage can be complex, and navigating the legal requirements can be overwhelming. That’s why considering the help of a qualified mortgage specialist or attorney is worth considering, especially if required by law. These professionals have the experience and expertise to guide you through the legal complexities of purchasing a home, ensuring you clearly understand your rights and obligations. By partnering with a qualified mortgage specialist or attorney, you can feel confident that you are making informed decisions and taking all the necessary steps to secure your dream home.

Navigating the mortgage application process can be manageable. You can easily secure your dream home by understanding different types of mortgages, collecting all necessary documents, researching lenders, calculating what you can afford for a monthly payment, getting pre-approved for a loan, and seeking help from a qualified mortgage specialist or attorney. Make sure to always do your research and get advice from trusted advisors. This guide should help you start on the right foot and make your mortgage application process seamless.

Mortgage rates continue their upward rise for 5 straight weeks

Scarlet Logan on March 20, 2023

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Mortgage – Despite a new year, the fight against inflation continues as it remains stubbornly unpredictable.

For the fifth consecutive week, mortgage rates inched toward 7%, and the Federal Reserve suggested that rates will continue increasing.

Fixed-rate average

According to Freddie Mac data released on Thursday, the 30-year fixed-rate mortgage hit an average of 6.73% in the week ending March 9.

A week before, the fixed-rate mortgage was lower at 6.65%.

Last year, the 30-year fixed rate was 3.85%.

It peaked at 7.08% in November, but the rates started dropping.

Despite the positive progress, rates started climbing again in February.

In the past month, the fixed-rate mortgage rose half a percentage point.

The robust economic data suggests that the Federal Reserve has more to do in the battle against inflation and will likely continue hiking the benchmark lending rate.

“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy,” noted Sam Khater, a chief economist from Freddie Mac.

“Overall, consumers are spending in sectors that are not interest rate-sensitive, such as travel and dining out.”

“However, rate-sensitive sectors, such as housing, continue to be adversely affected. As a result, would-be homebuyers continue to face the compounding challenges of affordability and low inventory.”

The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the United States.

It only covers borrowers who give a down payment of 20% with excellent credit scores.

Rate hikes confirmed to continue

At the onset of 2023, inflation showed signs of cooling off.

However, substantial employment numbers and a rising Consumer Price Index showed that inflation was still around and remained stubbornly high.

On Tuesday, Federal Reserve Chairman Jerome Powell spoke to Congress, saying the central bank will likely raise interest rates higher than before.

Economist Jiayi Xu of Realtor.com said:

“While last month Fed officials said that a smaller increase in the federal funds rate would help create a soft landing for the economy, Powell’s testimony on Tuesday made it clear that the central bank is prepared to return to a faster pace of rate increases if the incoming February economic indicators remain strong.”

She said the decision suggests that investors weren’t fully prepared as they are anxious about the Federal Reserve’s next actions.

The Fed has another rate-setting meeting on March 21 – March 22, with the possibility of another half-point rate in the cards.

“Uncertainty about how high rates will go and how long they will remain elevated makes it challenging for investors to make well-informed decisions,” said Xu.

“Therefore, it’s crucial to keep a close eye on the latest developments from the Federal Reserve.”

Although the Fed doesn’t set the interest rates borrowers pay on mortgages directly, its actions still influence them.

Mortgage rates tend to track the yield on 10-year US Treasury bonds.

It moves based on anticipation of the Fed’s actions, what it actually does, and how investors react.

When Treasury yields increase, mortgage rates also go up; when they decline, so do mortgage rates.

Housing market

The rising mortgage rates have slowed down the spring selling season.

According to the Mortgage Bankers Association, applications for a mortgage slightly rose last week following three weeks of declines.

As a result, the activity is muted.

Bob Broeksmit, the president and CEO of MBA, said:

“Even with this jump in activity, both purchase and refinance applications remain well below year-ago levels when rates were much lower.”

“The recent increase in mortgage rates, right at the start of the busy spring buying season, could cause prospective buyers to delay decisions until rates moderate.”

According to Fannie Mae’s survey, homebuyer sentiment fell to record lows in February.

Following three months of improvement, sentiment dropped and returned the index closer to its all-time survey low from October.

The most notable drops were associated with job security and home-selling conditions.

“While the current housing market may not look promising for sellers due to factors such as an increasing number of unsold homes, longer time on market, and decelerating price growth driven by high mortgage rates, there are still opportunities to be found,” said Xu.

For example, she noted that recent sales data shows the share of first-time homebuyers is higher than last year.

“As a result, sellers with starter homes may see robust demand and retain some bargaining power.”

Additionally, Xu said the lasting presence of hybrid working models offers more flexibility for homebuyers choosing where to live.

Instead of competing for a home in dense, central areas, buyers will move away from work if they don’t commute to work every day.

“This trend could make homes with easy access to public transportation systems more attractive to home buyers, which, in turn, enhances bargaining power for the sellers,” said Xu.

She also said that sellers who are also buyers could leverage their record-high equity even if they have to adjust expectations to lower asking prices.

Tag: Mortgage