Mortgage rates continued rising last week, up from 5.55% to 5.66%, Freddie Mac reported Thursday.
Freddie’s Primary Mortgage Market Survey (PMMS) found that the 30-year fixed-rate mortgage (FRM) averaged 5.66%, continuing its trek towards 6% after a few weeks of reprieve in the low 5’s.
A year ago at this time, the 30-year FRM averaged 2.87%.
“The market’s renewed perception of a more aggressive monetary policy stance has driven mortgage rates up to almost double what they were a year ago,” said Sam Khater, Freddie Mac’s Chief Economist.
“The increase in mortgage rates is coming at a particularly vulnerable time for the housing market as sellers are recalibrating their pricing due to lower purchase demand, likely resulting in continued price growth deceleration.”
Interest rates are expected to keep increasing as the Fed battles historically-high inflation. Job growth slowed in August, which the Fed is likely to interpret as a sign that its policies are working. But it remained high enough to keep Fed Chairman Jerome Powell on track for another interest rate bump this month.
“This data does little to derail the Fed from its current monetary policy path,” RSM chief economist Joe Brusuelas said.
“We call on the Fed to lift the policy rate by 75 basis points, and it should attempt to lift the Federal Funds rate to 4% by the end of the year.”
High interest rates are putting pressure on the housing market, which has seen both buyers and sellers back off as the cost of buying a home rises. Affordable-housing developers are stalling work on new projects, delaying thousands of units from coming to market, as rates increase the cost of their financing.
Because affordable-housing developers can’t rely on rent increases to make up for costs, they’re having to find additional funding before moving projects forward.
Aaron Pechota, executive vice president of development and head of affordable housing at the NRP Group, told the Wall Street Journal that affordability struggles will worsen down the line thanks to today’s delays.
“It will become much bigger in two years when delivery numbers drop significantly based on the lack of starts today,” he said.