Buying a home? Get ready for a 6% mortgage
The 6% mortgage is back.
For the first time since 2008, a widely watched survey shows the average interest rate on a 30-year fixed home loan is above 6%, the latest in a series of increases that has sharply slowed the housing market.
A year ago, the average rate on a 30-year fixed mortgage was 2.86%, but rates have surged this year because of inflation and the Federal Reserve’s efforts to fight it.
According to the survey released Thursday from mortgage giant Freddie Mac, this week’s average clocked in at 6.02%, up from 5.89% the previous week.
The average rate on a 15-year fixed mortgage, popular with refinancers, rose to 5.21%, up from 5.16% the previous week and 2.12% a year earlier.
Even before the latest increases, higher mortgage rates sharply curtailed demand this year, causing home sales to plummet and some experts to predict year-over-year home price declines in 2023.
In July, Southern California home sales fell 35% compared with a year earlier, while the median price was 8.8% higher, a far smaller increase than the nearly 17% gain seen in April.
If rates hold here, or keep rising, it could further dampen demand and make a drop in overall home values more likely as potential homeowners find they can afford even less.
Compared with a year earlier, an increase to 6.02% adds $1,105 dollars to a monthly mortgage payment if you put 20% down on a $740,000 house, which was the Southern California median price in July.
Purchasing a $1-million house? That’ll be $1,494 more a month.
Where rates head from here isn’t entirely clear, however. In large part that’s because the interest borrowers pay reflects what investors are willing to pay for mortgages repackaged on the secondary market.
Factors influencing that include Federal Reserve policy and the trajectory of both inflation and the overall economy.
With uncertainty surrounding those factors, rates have been volatile in recent months. After nearing 6% in June, rates retreated. They even dipped below 5% the first week of August, before starting their climb to 6.02%.
Keith Gumbinger, vice president of research firm HSH.com, said rates have risen in recent weeks in part because the labor market has remained strong and investors see less of a chance for an immediate recession and a greater chance inflation will stay elevated.
Freddie Mac’s survey covers mortgages for people with excellent credit who put 20% down, meaning many current home shoppers should expect higher rates than the survey average.
The last time rates were this high was in November 2008, when the 30-year mortgage averaged 6.04%.