Key facts
- Mortgage rates for 30-year conforming loans are averaging 6.94%, nearing 7%.
- Despite rising rates, mortgage applications increased by 1.9% last week.
- The Federal Reserve is widely expected to keep its policy rate unchanged at 3.5% to 3.75%.
- Housing affordability has declined for the third consecutive month.
- Lower-priced housing markets (under $300,000) are showing stable demand and increased inventory.
- Higher mortgage rates are impacting the amount of equity seniors can access through reverse mortgages.
Mortgage rates are nearing 7% for 30-year conforming loans, averaging 6.94% this week, an increase of 9 basis points from the previous week. Jumbo and FHA loan rates also saw similar increases. Despite these rising borrowing costs, demand for home purchases and refinancing has remained resilient, with mortgage applications rising 1.9% last week according to the Mortgage Bankers Association (MBA).
Bob Broeksmit, president and CEO of the MBA, stated that improved inventory in many markets is allowing more buyers to enter the market even with elevated borrowing costs. He anticipates continued purchase activity due to housing demand and growing supply.
The Federal Open Market Committee (FOMC) is expected to keep its policy rate unchanged at 3.5% to 3.75% at its upcoming meeting. However, some economists, like Sam Williamson of First American, suggest a rate hike is more plausible due to rising energy prices and a resilient labor market. Charles Goodwin of Kiavi noted that recent softer inflation data, largely driven by energy prices, might keep benchmark rates in check.
Analysis from First American indicates that housing affordability has decreased for the third consecutive month, yet it remains significantly improved compared to a year ago. Household income growth is outpacing home price appreciation, and mortgage rates are still below year-ago levels. A separate analysis found that lower-priced markets, with homes under $300,000, are bucking the trend of decreased demand, showing stable absorption and increased inventory.
Creative financing options such as adjustable-rate mortgages (ARMs), interest-only loans, and temporary buydowns are being considered by borrowers. For senior homeowners, higher rates are reducing the principal limit factors for reverse mortgages, limiting the amount of equity that can be accessed upfront and impacting the long-term financial calculations for these products.