Higher borrowing costs are hitting first-time buyers especially hard.
For the third consecutive week, mortgage rates were on the rise, forcing some hopeful home buyers to the sidelines. Freddie Mac’s latest nationwide survey shows the 30-year fixed-rate mortgage averaging 6.96%.
“Rates are just a sliver below 7%, and that will make it difficult not only for home buyers but also sellers considering a move,” says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. The latest NAR data shows home prices increased in 60% of the nation’s largest metro areas in the second quarter, further pressing on buyers’ budgets. “Affordability challenges will continue for buyers if new inventory is not brought to the market and rates do not abate,” Lautz adds. Homeowners who locked in mortgage rates in the 2% or 3% range more than a year ago are showing reluctance to move and swap their ultra-low rate for a higher one.
“There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again,” says Sam Khater, Freddie Mac’s chief economist. “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.”
But first-time home buyers are finding it more difficult to get into homeownership, particularly after the rate on Federal Housing Administration loans this week surged to their highest level in more than two decades, reaching 7.02%, the Mortgage Bankers Association reports. FHA loans tend to be a draw among first-time and low-income home buyers due to their low down payment options.
As mortgage rates rise across the board, some home buyers may be forced to hit the pause button on their purchase plans. Mortgage applications for home purchases fell 3% last week and are now 27% lower than a year ago, MBA reports. Higher prices and rates, combined with historically low inventory, are proving to be major challenges to the summer homebuying season.
Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 10:
30-year fixed-rate mortgages: averaged 6.96%, rising from last week’s 6.9% average. A year ago, 30-year rates averaged 5.22%.
15-year fixed-rate mortgages: averaged 6.34%, increasing from last week’s 6.25% average. A year ago, 15-year rates averaged 4.59%.