As mortgage rates enter ‘red zone’, home buyers find they can’t bully sellers hard enough to compensate

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As mortgage rates enter ‘red zone’, home buyers find they can’t bully sellers hard enough to compensate

Average interest rates on America’s most popular home loan hit a 14-year high this week, pricing out even more potential buyers amid a double whammy of high home prices and rising borrowing costs.

“The monthly payment that people have to pay to buy that house is just priceless,” Mark Zandi, chief economist at Moody’s Analytics, said on the Plain English podcast.

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“Many potential first-time buyers in the housing market are now literally locked out of the housing market.”

And with this month’s surprisingly high inflation figures, borrowing costs could rise even higher as the Federal Reserve plans more rate hikes.

30-Year Fixed Rate Mortgages

The average interest rate on a 30-year fixed mortgage hit 6.02% this week, up from 5.89% a week earlier and more than double what it was a year ago, mortgage financing giant Freddie Mac reported Thursday.

“Mortgage rates continued to rise this week alongside higher-than-expected inflation rates, reaching above 6% since late 2008,” said Sam Khater, chief economist at Freddie Mac.

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“While the rise in rates will continue to dampen demand and put downward pressure on house prices, inventory remains deficient. This indicates that while house price declines are likely to continue, they should not be large.”

Mortgages with a term of 15 years with fixed interest

The interest on a 15-year mortgage averaged 5.21% this week, compared to 5.16% last week, Freddie Mac reports.

At this time a year ago, the 15-year yield averaged 2.12%.

The higher rates are hitting home sales upside down and sellers are forced to lower their prices. That gives some buyers the upper hand in negotiations, but it’s not always enough.

“Unfortunately, it is increasingly difficult for buyers to tap into their newfound power due to affordability pressures from rising mortgage rates and a lack of homes for sale,” Taylor Marr, deputy chief economist at Redfin, said in a market update.

“Today’s average buyer pays less than list price, but they continue to struggle to find a home that meets their criteria and budget.”

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Mortgage with 5 years adjustable interest

The average rate on a five-year floating rate mortgage (ARM) rose to 4.93%, up from last week when it averaged 4.64%.

At this time a year ago, the 5-year ARM averaged 2.51%.

ARMs start out at lower rates than longer-term loans, but after their initial maturity, they adjust each year — up or down — in step with the prime rate or other benchmark.

Borrowers may be able to refinance at a lower rate once the initial term expires, but that’s only if rates fall. They could easily move higher depending on the health of the economy.

Another dip in mortgage applications

Last week, mortgage applications fell 1.2% from the previous week, according to the latest Mortgage Bankers Association (MBA) survey.

The decline was driven by applications for refinancing of existing loans, which fell 4% from the previous week and were 83% lower than the same week last year.

Applications for mortgages for the purchase of homes rose, but by only 0.2%.

“Higher mortgage rates have caused refinancing activity to fall more than 80% from last year and have contributed to more homebuyers being left on the sidelines,” said Joel Kan, MBA’s associate vice president of economic and industrial forecasting. this week.

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Rates fall into ‘red zone’

Phoenix broker Joe Bourland says affordability was compromised when mortgage rates started rising earlier this year — and the market is feeling it.

“When those rates really started rising into the 5s, the market turned a dime,” he says. “It was really dramatic.”

A buyer who buys a mid-price home now pays a $2,100 monthly mortgage, up 66% from last year, according to realtor.com. And new offers have been dropped for 10 consecutive weeks.

“We are entering a red zone on mortgage rates as consumers are likely to wait out the market as rates rise to 7%,” said Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C.

“This level is vastly higher than the rates seen just nine months ago, and the expensive transportation costs are shocking to most potential buyers.”

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This article provides information only and should not be construed as advice. It comes without any kind of warranty.

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