Mortgage rates exceed 3%, putting pressure on homebuyers

Mortgage rates have crossed 3% for the first time since early July – and homebuyers could feel the tightening.

The 30-year fixed rate mortgage was on average 3.01% for the week ending September 30, up 23 basis points from the previous week, Freddie Mac FMCC,
+ 0.12%
reported this week. A year ago, the 30-year fixed rate mortgage was on average 2.88%.

“At today’s rate, the monthly mortgage payment on a median priced home is about $ 150 higher than a year ago, with $ 25 of the increase due to higher rates. and $ 125 due to higher prices, ”said Danielle Hale, chief economist for Realtor.com.

The 15-year fixed-rate mortgage, meanwhile, rose 13 basis points to an average of 2.28%. The 5-year Treasury-indexed variable rate mortgage averaged 2.48%, up five basis points from the previous week.

The rise in mortgage rates follows the rise in the 10-year US Treasury yield TMUBMUSD10Y,
1.494%
over the past week – long term bond hit its highest level since June. In both cases, the spike in interest rates came in reaction to the Federal Reserve’s statement last week. The central bank has indicated that it will start cutting back on the asset buying activities it launched last year in an attempt to stimulate the economy. Central bankers have also indicated that an interest rate hike could occur in 2022.

Among the assets that the Fed buys each month are mortgage-backed securities. These purchases by the central bank helped inject a ton of liquidity into the mortgage market, which allowed lenders to cut interest rates. With the size of the Fed’s purchases likely to decline later this fall, lenders will be forced to raise rates, economists say.

This could have spillover effects on the housing market at large. “Mortgage rates remain low and support demand” for housing, Rubeela Farooqi, chief US economist for High Frequency Economics, wrote Thursday in a research note. “However, the incentive for buyers may wane if rates increase once the Fed begins to cut.”

For buyers still in the market, it will become important to consider the potential for rising interest rates when determining their budgets, Hale said.

“Smart buyers should consider calculating a monthly payment not only at today’s rates, but also at somewhat higher rates so that they don’t get derailed by a sudden upward movement,” Hale said. . “Plus, home buyers want to take a close look at their must-haves versus credit notes, as rising home prices and higher rates mean higher monthly payments.”

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