Photo: Robert Clark
National mortgage interest rates fell back slightly this week after recent increases, but rates remain significantly higher from where they were a year ago, according to new data from Freddie Mac.
Yet despite higher interest rates, economists at Freddie Mac say that mortgage payments remain “affordable for most American homebuyers.”
“While higher mortgage rates have led to a decline in home sales this year, the weakness has been concentrated in expensive segments versus entry-level and first-time buyer which remains firm throughout most of the rest of the country,” writes Freddie Mac’s chief economist Sam Khater in a statement.
Currently, a 30-year fixed-rate mortgage (FRM) averaged 4.83 percent, down 0.03 percentage points from the end of last week and up from 3.94 percent recorded last year at this time.
Interest rates rose to their highest level in five years in September, and some buyers in higher-priced markets can’t keep up with the market’s current volatile state.
“Consumers who say it’s a bad time to buy a home most often cite high home prices over mortgage rate, economic, and other concerns,” Fannie Mae market insights researcher Sarah Shahdad tells Livabl.
Many economists believe the strong economy and jobs market could be pushing rates upward, and buyers should be prepared to pay more if they delay their purchase.
“Rising rates translate to more expensive mortgage payments, which crimps affordability for would-be homebuyers. The increased rates adds to what is already a laundry list of obstacles facing buyers,” Stribling & Associates director of data and reporting Garrett Derderian tells Livabl. Stribling & Associates is a leading New York brokerage.
Since January 2018, interest rates have been rising twice as fast as home values, and the increases may cost average buyers close to $1,400 additional average per year nationwide.
So far the Federal Reserve raised rates three times in 2018, and some experts say as many as five more increases could happen before the end of 2019. And in pricier markets, the cost of the rate increases can add up to thousands.
Supply — and not rising interest rates — is the bigger hurdle facing buyers, according to Khater.
“Choices are limited and the inventory shortage has caused home prices to rise well above fundamentals,” says Khater.
Still, rising rates are deterring many first-time buyers who don’t have a lot of wiggle room in their budget from buying. And many home sellers who are choosing to stay in their homes longer to keep their current rate — exacerbating the chronically low level of supply.
Low supply and high demand are pushing national home prices upward.
“The combination of higher interest rates and home prices made mortgage payments about 15 percent higher than they were a year ago. This disparity not only makes mortgage payments more of a financial burden, but saving up the initial down payment is harder as home value appreciation itself is outpacing wage growth,” Zillow senior economist Aaron Terrazas tells Livabl.