To buy a house? 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 mortgage is above 6%, the latest in a series of increases that have sharply slowed the housing market .
A year ago, the average rate for a 30-year fixed mortgage was 2.86%, but rates have jumped this year due to inflation and the Federal Reserve’s efforts to combat it.
According to the survey released Thursday from mortgage giant Freddie Mac, the average for this week reached 6.02%, compared to 5.89% the previous week.
The average rate on a 15-year fixed mortgage, popular with refinancers, rose to 5.21% from 5.16% the previous week and 2.12% a year earlier.
Even before the latest increases, rising mortgage rates have sharply reduced demand this year, causing home sales to plummet and some experts predict lower year-over-year home prices in 2023.
In July, Southern California home sales fell 35% from a year earlier, while the median price was 8.8% higher, a much smaller increase than the nearly 17% gain seen in April.
If rates hold here or continue to rise, it could further dampen demand and make a decline in overall home values more likely as potential homeowners find they can afford even less.
From a year earlier, an increase to 6.02% adds $1,105 to a monthly mortgage payment if you put 20% less on a $740,000 home, which was the median price in Southern California in July.
Buying a $1 million house? It will be $1,494 more per month.
However, the direction of rates from here is not entirely clear. This is largely because the interest paid by borrowers reflects what investors are willing to pay for repackaged mortgages in the secondary market.
Factors influencing this include Federal Reserve policy and the trajectory of inflation and the overall economy.
Given the uncertainty surrounding these factors, rates have been volatile over the past few months. After hovering around 6% in June, rates have fallen. They even fell below 5% in the first week of August, before beginning to rise 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 chance of an immediate recession and a greater chance that inflation will remain high.
Freddie Mac’s survey covers mortgages for people with great credit who have staked 20%, meaning many current homebuyers 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%.