Home buying is getting harder, with mortgage rates on the rise again this week. This Thursday, they hit an average of 5.55%, according to data from Freddie Mac. Mortgage rates are now almost double what they were one year ago, and the latest data highlights the impact the increases are having on the cost of borrowing.
Freddie Mac clocked the average 30-year, fixed-rate mortgage at 5.55% this week, up from 5.13% one week earlier and just 2.87% a year ago. Meanwhile, the average 15-year fixed-rate mortgage was 4.85%, up from 4.55% a week ago and 2.17% one year before. As for the 5-year, hybrid adjustable-rate mortgage, this averages 4.36%, down from 4.39% last week but up from last year’s 2.42%.
Earlier this week, National Association of Realtors Chief Economist Lawrence Yun proclaimed that the U.S. is now experiencing a “housing recession”, with existing home sales falling 20% from a year ago. At the same time, new contract signings have also fallen by 20%, suggesting that things will only get worse as the year progresses. Moreover, there’s been a significant downturn in new home sales, which fell by 30% annually in July.
In a blog post, NAR Senior Economist and Director of Forecasting Nadia Evangelou said buyers are being further hampered by strong home price growth, which are still up by double-digits compared to a year earlier. She wrote that a median-priced home now costs around $40,000 more than it did one year ago. However, while increased prices drive costs up, the rising rates do so even more. An increase of just one percentage point in mortgage rates has the same effect on mortgage payments as if home prices rose by 13 percentage points, Evangelou said.
The NAR said this week homes haven’t been this unaffordable since 1989. Increasing rates have made borrowing more expensive. In July, the typical monthly mortgage payment was almost $2,000 per month, up 54% from a year ago.
“The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market,” says Sam Khater, Freddie Mac’s chief economist. “Home sales continue to decline, prices are moderating, and consumer confidence is low. But amid waning demand, there are still potential home buyers on the sidelines waiting to jump back into the market.”