Mortgage Rates Ticking Up to 7 Percent

Homes await buyers in Irvine, Calif., on Sept. 21, 2020. John Fredricks/The Epoch Times

Mortgage rates are approaching 7 percent following a dip to nearly 6 percent a few weeks ago, signaling further challenges ahead for the American housing market.

The average rate on a 30-year fixed-year mortgage was 6.84 percent for the week ending Nov. 21, according to data from Freddie Mac. The rate is up from a low of 6.08 percent in late September and is now inching close to this year’s peak of 7.22 percent, hit in May.

“Heading into the holidays, purchase demand remains in the doldrums,” Sam Khater, Freddie Mac’s chief economist, said. “While for-sale inventory is increasing modestly, the elevated interest rate environment has caused new construction to soften.”

Mark Palim, senior vice president and chief economist at Fannie Mae, noted that interest rates have moved up in the past couple of months on the back of “continued strong economic data and disappointing inflation readings.”

The higher mortgage rate environment will likely maintain the ongoing “lock-in effect,” he said, referring to the phenomenon of homeowners unwilling to sell because existing mortgage rates on their properties are on the lower side. If they sold now, they would have to acquire new properties at higher rates.

An August report by real estate brokerage Redfin showed that nearly 86 percent of homeowners have mortgage rates below 6 percent. Almost 60 percent of owners had rates below 4 percent while more than one in five had rates below 3 percent.

The elevated mortgage rates are expected to keep inventory additions and existing home sales “subdued” through the next year, Palim said.

Fannie Mae’s Economic and Strategic Research group had earlier expected mortgage rates to dip below 6 percent in the beginning of next year. However, the group has revised its forecast and now estimates that rates will end next year at 6.3 percent.

According to real estate listings website Realtor, the housing market is adjusting to the victory of President-elect Donald Trump, who has promised a crackdown on illegal immigration and tariff hikes on imported goods.

Temporary Demand Boom

Even though mortgage rates have been rising, early-stage homebuying demand is now at its highest level in 15 months, according to Redfin. However, the influx of buyers and sellers in the market is a post-election phenomenon, said Chen Zhao, economic research lead at the company.

These people had been waiting for the election to be over and the Federal Reserve to cut down rates for a second time, both of which have now happened, she noted.

“Now we’re keeping a close eye on whether this is a short post-election boom, or if it translates into a steady improvement in pending sales,” she said.

Meme Loggins, a Redfin premier agent in Portland, Oregon, said that while many homebuyers find it difficult to accept high mortgage rates, there are “plenty others” who have accepted that rates won’t be coming down any time soon.

Data from the Mortgage Bankers Association show that mortgage applications for the week ending Nov. 15 rose from the prior week.

Joel Kan, vice president of the association, pointed out that the increase in mortgage applications was driven by both conventional and Federal Housing Administration (FHA) loans. FHA purchase applications saw a 7 percent jump, he noted.

“For-sale inventory has loosened in some markets and some potential buyers have been able to take advantage of increasing supply and lower FHA rates, which were down slightly in comparison to the conforming 30-year fixed rate,” Kan said.

Meanwhile, housing production slowed down in October because of elevated mortgage rates, according to a Nov. 19 report by the National Association of Home Builders. On the plus side, builder sentiment improved for the third consecutive month in November amid expectations that the regulatory environment will be better next year.

Robert Dietz, chief economist at the National Association of Home Builders, said that “further interest rate cuts from the Federal Reserve through 2025 should result in lower interest rates for construction and development loans, helping to lead to a stabilization for apartment construction and expansion for single-family home building.”