‘Housing market may have to go through a correction’: Mortgage rates hit 6.29%, says Freddie Mac

‘Housing market may have to go through a correction’: Mortgage rates hit 6.29%, says Freddie Mac

The numbers: Mortgage rates in the US continue to rise, driving potential homeowners hundreds of dollars in costs.

The rise in mortgage rates followed the Federal Reserve’s hike in interest rates to address the worst inflation the economy has faced in 40 years.

The 30-year fixed-rate mortgage averaged 6.29% on Sept. 15, according to data released Thursday by Freddie Mac.

That’s 27 basis points more than the previous week – one basis point is equal to one-hundredth of a percentage point.

The rise in rates is bad news for potential buyers, as it could potentially add hundreds of dollars to their mortgage payments.

Mortgage rates are now at their highest level since 2008, Bob Broeksmit, president and CEO of the Association of Mortgage Banks, said in a statement.

The typical mortgage applicant’s monthly payment is $456 more than it was in January, he added.

Given the rise in rates and the withdrawal of buyers, the median price of an existing home in the US fell to $389,500 in August from $403,800 the previous month, according to the National Association of Realtors.

A year ago, the 30-year mortgage interest rate stood at 2.88%.

The average interest rate on the 15-year mortgage also rose to 5.44% last week.

The adjustable-rate mortgage averaged 4.97%, up from the previous week.

“The housing market continues to face headwinds as mortgage rates rise again this week, after 10-year yields jump to their highest levels since 2011,” Sam Khater, chief economist at Freddie Mac, said in a statement.

“Affected by higher rates, house prices are falling and home sales have fallen,” he added.

The country is still struggling with a shortage of houses for sale. And “many homeowners simply choose not to sell at all because they don’t want to face the tough housing market,” Daryl Fairweather, chief economist at Redfin, told MarketWatch.

“And that means fewer homes coming onto the market. So while buyers are pulling out, sellers are also pulling out,” she added.

Meanwhile, mortgage applications rose in anticipation of further rate hikes last week. Buyers are eager to enter the market before mortgage rates get even higher.

Ultimately, housing prices fall on higher rates, and sellers responding to lower demand is a “good thing,” Federal Reserve Chairman Jerome Powell said at a news conference on Wednesday as they announced the rate hikes.

“House prices rose at an unsustainably rapid level,” Powell said.

“Longer term, we need supply and demand to better match up so that house prices rise to a reasonable level… and people can afford to buy a house again,” he added. “The housing market may have to make a correction to get back to that spot.”

The 10-year Treasury yield rose TMUBMUSD10Y,
3.714%
above 3.6% in Thursday morning trading.

Do you have ideas about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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