Mortgage rates swing back up, hitting 5.22%

U.S. mortgage rates rose back above 5%, ratcheting up pressure on the cooling housing market.

The average for a 30-year loan increased to 5.22% from 4.99% the previous week, Freddie Mac said Thursday in a statement. That’s the first increase since July 21.

This year’s rise in borrowing costs has started to calm the pandemic-era frenzy that gripped housing markets across the country. Potential buyers have been sidelined as they struggle to find affordable properties. These days homes are lingering on the market longer, fueling an increase in housing inventory in July, according to a Realtor.com report.

“The 30-year fixed-rate went back up to well over five percent this week, a reminder that recent volatility remains persistent,” said Sam Khater, Freddie Mac’s chief economist. “Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market.”

With the market cooling, homebuilders now are facing a rise in unsold properties. Confidence among those companies plunged in July as sales and buyer traffic slowed, according to a survey from the National Association of Home Builders and Wells Fargo & Co.

Freddie Mac’s mortgage data is collected from Monday through Wednesday. On Mortgage News Daily, which updates the figure more frequently, the rate on a 30year loan hit 5.18% late Wednesday.

“Real estate markets continue on the path toward rebalancing,” said George Ratiu, Realtor.com’s manager of economic research. “These shifts point toward a welcome change for buyers who are still in the market.”

Expect more rate hikes

Mortgage rates likely will rise again this month as the Federal Reserve continues to yank interest rates higher.

The Fed’s chairman, Jerome Powell, repeatedly has said that the central bank’s “overarching focus” right now is to slow inflation. The Fed applies the brakes on inflation by raising short-term interest rates. When the central bank tugs shortterm rates higher, mortgage rates usually rise, too.

The Fed has targeted mortgage rates specifically. During the depths of the pandemic, the central bank bought government and mortgage debt, pushing mortgage rates to record lows. Now the Fed is gradually reducing those debt holdings, which is expected to force rates upward.

This so-called reduction of the Fed’s balance sheet is just beginning. As Powell pointed out in a news conference July 27 after the Fed’s latest rate increase, the shedding of these assets is still ramping up and will “go to full strength” in September. As that date approaches, mortgage rates will bear additional upward pressure.

Affordability dips as rates rise

Those higher mortgage rates are claiming a bigger share of incomes and prices still rising at double-digit rates across most of the country.

The monthly bill on a typical existing single-family home with a 20% down payment jumped to $1,841 in the second quarter, according to the National Association of Realtors. That’s up 32%, or $444, from the first quarter and a 50% jump from a year earlier. Families spent about 24% of their incomes on mortgage payments in the second quarter, up from 19% in the previous three months and 17% last year.

The median price topped $400,000 for the first time, reaching $413,500. The 14.2% gain from a year earlier was slightly smaller than the 15.4% annual increase in the first quarter, thanks to a slowdown in sales. But that’s little comfort to would-be buyers who are stretching to afford a purchase and still getting tangled in bidding wars.

“Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers,” said Lawrence Yun, chief economist for the Realtors group. “Overall, the national price deceleration inevitably followed the softening sales, providing well-positioned prospective buyers a small measure of welcomed relief.”

In the second quarter, 148 of the 185 metro areas measured by the Realtors group — or 80% — had double-digit annual price gains. That was up from 70% of regions in the first quarter.